Vodafone Idea Faces Uncertainty After SC AGR Ruling: Can Debt & Capex Plans Survive?

The Supreme Court recently rejected the telecom operators' plea to recompute Adjusted Gross Revenue (AGR), which is likely to impact Vodafone significantly. Despite this Vodafone Idea maintains that its debt-funding and capital expenditure (capex) strategies remain unaffected. The company has also said that banks had already factored in the possibility of an unfavourable AGR ruling during their recent techno-economic evaluation (TEV).

However, market analysts remain sceptical. They argue that the SC ruling could significantly delay Vodafone Idea’s debt-funding efforts and hinder its capex execution. This may lead to further market share losses, a challenge for a company that already faces stiff competition from rivals like Reliance Jio and Bharti Airtel. Analysts had hoped for a positive AGR ruling as a "wildcard" to improve Vodafone Idea's financial health, enabling it to better compete in the market.

Without this relief, Vodafone Idea may face severe financial strain between FY 2026 and 2027. This timeline aligns with upcoming deadlines for the company's annual spectrum and AGR payments to the government, estimated at $5 billion. The company has already raised $2.4 billion in equity and is in the process of securing an additional $4 billion in debt to stay afloat.

Despite the negative outlook from analysts, Vodafone Idea remains optimistic. A company official stated that while a positive SC ruling would have been helpful, its absence will not impact their current debt-raising or capex plans. The telco has earmarked ₹55,000 crore for capex over the next three years, aimed at 5G deployment and expanding 4G coverage in priority areas. The company believes its recent equity raise has sufficiently covered near-term capex requirements.

The SC’s rejection of curative petitions from both Vodafone Idea and Bharti Airtel earlier this week was a major setback. Telecom operators had hoped to correct computational errors related to pending AGR dues. The dismissal leaves Vodafone Idea with a substantial AGR liability of $8.5 billion, contributing to its net debt of $28 billion as of Q1 2024-25.

Despite the ruling, some experts believe the situation isn't entirely bleak. Brokerage firm Nomura suggests that while the SC decision adds challenges, the telco could still manage its large debt burden with government support. Nomura also predicts that tariff hikes and 5G monetisation over the next two years may help Vodafone Idea rebuild its business.

On the other hand, Macquarie analysts stress that without AGR concessions, it would take the company up to 30 years at a 15% ARPU growth rate to settle its outstanding dues. They highlight the risk of equity dilution and market-share erosion in the absence of an extension for repayment deadlines.

The telecom sector now awaits further developments, including potential government intervention to help Vodafone Idea navigate this financial quagmire.

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