Shares of struggling telecom operator Vodafone Idea (Vi) have been in the spotlight over the last few days. Last week in a major setback to telecom operators, especially Vi, the Supreme Court of India rejected curative petitions filed by them related to their AGR dues. Following the ruling, shares of Vi had crashed to a 52-week low of Rs 9.79 on Friday, September 20. On Monday, the stock jumped over 11 per cent, eventually closing up 3.3 per cent at Rs 10.83 as investors gave a thumbs up to its announcement on Sunday that it had awarded Rs 30,000 worth of contracts for network equipment.
Ravinder Takkar, the company's chairman said on Monday that the teleco had been in talks with the government even before the Supreme Court's last week judgement related to the AGR matter.
"We have been engaging with various senior government officials. All the engagements have been...a very clear view from every side that the merits of our case on the AGR with regards to the calculation errors and mistakes are quite strong and correct and while there was a hope that the court will obviously consider the petition, the fact that the court has not done so means that the action and responsibility in some ways falls squarely on the government," said Takkar.
He added that the government had asked the company to put together a comprehensive view of what it believes would be the right mechanism and request that it can make for addressing the challenge.
"There is a very clear understanding that the government should not be fair to ask us to pay for something, which is a calculation error. We are in the process of putting together those requests," Takkar informed analysts in a call on Monday.
The government currently holds 23.1 per cent stake in the ailing telecom company.
A major concern for Vi has been around the huge dues it has. Over the past year till June, the company's debt from banks and financial institutions reduced by Rs 4,550 crore. However, payment obligations to the government stood at Rs 2.09 lakh crore at the end of June, including deferred spectrum obligations and AGR liability.
Company officials said on Monday that while the Supreme Court verdict was disappointing, it would not affect Vi's long-term business plan.
"While a positive outcome would have no doubt eased the overall liability and enabled faster deleveraging, we would like to reassure that our long-term business plan and revival strategy remains unaffected. In fact, our long-term business plan, which has been shared with the banks and on the basis of which the techno-economic evaluation has been done, has been constructed without considering any potential benefit in the AGR matter," said Vi's CEO Akshaya Moondra.
Vi's three-year capital expenditure plan is of a sizeable Rs 55,000 crore. The capex will be towards expanding the 4G coverage, launching 5G in key markets and capacity expansion in line with data growth.
The telecom operator needs massive investments in its network, given that it lags its larger rivals Reliance Jio as well as Bharti Airtel, not just in 5G, which it is yet to launch, but even 4G coverage. Vi had been in discussions with equipment suppliers for some time, and closing the deal now is a hugely positive step in the right direction.
Another problem Vi faces is a drop in subscribers. For a long time now, the company has been losing customers month after month, a key reason being the network constraints. In the April-June quarter, for instance, the company's user base had declined by 2.5 million to 210.1 million.
Notably, all the three private players—Jio, Airtel and Vi lost subscribers in July 2024, according to data published by TRAI (Telecom Regulatory Authority of India). All the three had raised tariffs earlier. This was the first tariff hike in more than two years, and analysts say more hikes will be needed for improving health of the sector.
But, many customers unhappy with the tariff hike, quickly ported out to Bharat Sanchar Nigam Ltd (BSNL) in July. The state-owned company was the only one not to have raised prices and it was the only player gaining subscribers that month.
Vi raised Rs 24,000 crore earlier this year, which included a follow-on share sale and preferential issue to promoters. It also issued shares to equipment suppliers Nokia and Ericsson to partially settle outstanding dues.
Separately, the company has also been in talks with lenders to raise additional funds. It seeks to raise Rs 25,000 crore in term loans and another Rs 10,000 crore in non-fund based loans. Moondra is hopeful that it will be completed in the next 7-8 weeks. The banks had recently completed the techno-economic evaluation of the company.
He is also hopeful that once its investment in the network happen, the subscriber churn it has seen should also reduce.
"Once we make the investment, we will be able to arrest the churn so that instead of losing subscribers, we can start participating in the growth of the industry. I would say, once our supplies start coming end of next quarter and then some amount of the rollout is happening and it gives momentum in Q4 (January-March quarter) of the financial year, we should start seeing subscriber metrics improving from that time," said Moondra.
He further added that while it was difficult to say from when the subscriber numbers would start turning positive, he expects that towards the financial year end they will be in a position where the network rollout will be significant and the change in customer experience will also be significant.
The recently concluded fund raising by the company has ensured its medium-term sustainability, said Dayanand Mittal of JM Financial Institutional Securities.
"However, for the company to turn around into a sustainable telco, we believe it might need multiple significant tariff hikes that can boost ARPU (average revenue per user) to Rs 370 by FY27 (versus Rs 146 in Q1 FY25) so as to meet the annual Rs 43,000 crore payment obligation to government over FY27-31 (and Rs 29,100 crore payment in FY26); partial relief from government dues and ability to internally fund sharp sustainable jump in capex to Rs 10,000-15,000 crore per annum in the long term or 15-20 per cent of revenue (in line with 16-20 per cent of revenue assumed for Bharti Airtel and Jio)," he felt.
Vibhor Singhal of Nuvama Institutional Equities said that while the unfavourable Supreme Court judgement was a "big setback" to Vi, the sharp correction in the stock price post the judgement "more or less captured" the value of the incremental liability over and above what the street was expecting.
The focus would now shift to the company's progress on key operational parameters, including pace of subscriber loss, tariff hike impact and capex velocity, he added.
