Vodafone India may struggle to pay AGR dues even in 20 years

The future of Vodafone Idea is still uncertain with the Supreme Court putting off a decision on allowing more time to pay the AGR dues. But even if the apex court agrees to allow 20 years to make the payments, Vodafone Idea may find it difficult to compete with the cash-rich Reliance Jio.

There are multiple headwinds facing the operator. Vodafone Idea is still playing catch-up with Reliance Jio and Bharti Airtel when it comes to 4G network roll-out. Even if the ₹53,000-crore AGR dues have to be paid over 20 years, the operator’s balance sheet will be highly leveraged to make fresh investments into network roll-out or acquiring fresh spectrum.

5G auctions

It is expected that the Centre will hold 5G spectrum auction sometime next year and going by the existing reserve price for the airwaves, Vodafone Idea may find it difficult to participate in a bidding process in view of the already large debt on its books.

In this scenario, there are limited options for the operator. One option could be to increase tariff further so that it gets an average revenue per user of around ₹260 per month. That’s 1.5 times what it gets at present. That looks unlikely given that rival Reliance Jio has managed to improve its overall debt position and is under no pressure to increase tariffs.

“While we think Vodafone Idea can manage its cash flow needs till FY22 mainly on account of a two-year moratorium (FY21 and FY22) on deferred spectrum debt, we believe the company may find it challenging to service the AGR dues in case the tenure for staggered payment is short (less than 10 years).

Debt repayment

“Beyond FY22 (when its annual spectrum debt repayment of ₹15,700 crore resumes), we believe the company’s viability will remain under a cloud without strong operational improvement and significant equity infusion. Even at ₹200 ARPU. the company would find it difficult to meet its operating and regulatory cash flow needs from FY23 onwards,” said an analyst at Credit Suisse.

Vodafone Idea on Thursday told the Supreme Court that it does not have money to even offer additional guarantees to secure a longer term duration for the AGR payout.

The only viable option for the operator then could be to sell equity stake to a financially strong investor once the court allows more time to pay the dues.

Both Vodafone Plc and Aditya Birla Group have stated that they will not infuse any more funds into the telecom company. Without fresh funding the telecom operator is as good as dead even if it gets relief from the Supreme Court in July.