Brokerages flag debt concerns after SC rejects Vodafone Idea's AGR plea, shares extend losses

The SC's dismissal of Vodafone Idea's curative petition further reduces the probability of an outright waiver by the Centre.

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26 Aug, 2025 12:21

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In a large setback for debt-laden telecom operator, the Supreme Court rejected Vodafone Idea's plea for the re-computation of adjusted gross revenue (AGR) dues. Now having to deal with the burden of shouldering the heavy debt, brokerages questioned the telco's FCF and growth plans.

In their curative petitions, the telecom companies, ranging from VI to Bharti Airtel, had sought relief alleging grave error in the calculation of dues by the department of telecommunication.

Vodafone Idea's curative petition in the AGR case sought three main reliefs: correcting arithmetic and clerical errors in the AGR demand; requesting that the penalty be limited to 50 percent of the shortfall; and revising the interest rate on the penalty to 2 percent above the State Bank of India's prime lending rate.

At 9.25 am, Vodafone Idea shares extended their losses, sinking below the Rs 10-mark to Rs 9.79 per share, down four percent compared to the previous session's close.

Also Read | SC rejected telcos' curative plea on AGR dues

However, this was rejected by the country's apex court. As a result of the debt, the telecom operator's FCF math is challenged. Without the AGR relief, Macquarie estimated that it would take Vodafone Idea at least 25-30 years to organically pay back the dues., as its cashflows, even on higher tariffs, shall be inadequate to meet these obligations. Therefore, VI will require further repayment timeline extensions for the dues to be paid.

"Vodafone Idea’s big problem, even after its FPO and tariff hikes, is its highly stretched balance
sheet, with liabilities of Rs 2.5 lakh crore," said Nuvama Institutional Equities. Of this, Rs 2.1 lakh crore are made up of spectrum and AGR liabilities – both due to the government – on which, GoI had provided a moratorium to all telecom players for four years.

According to CLSA, in the absence of the relief, Vodafone Idea could potentially face a financial crisis in the second half of FY26, when annual spectrum and AGR payments of around $4-5 billion are due.

The SC's dismissal of Vodafone Idea's curative petition further reduces the probability of an outright waiver by the Centre. However, UBS did not rule out an equity conversion of the debt, or a deferral, as both the measures were previously undertaken. It remains to be seen whether these measures could be NPV positive for the equity holders.

Japanese broking firm Nomura offered a contrarion view. "AGR overhang concludes; recent sharp correction with strong industry outlook provides an opportunity to buy," said the brokerage. It upgraded VI to a 'buy' rating, with a target price of Rs 15 per share.

"Despite its large debt burden (but manageable with government support) in the coming years, VI will be able to steadily repair and rebuild its business and partake in the robust outlook for the Indian telecom industry — which is underpinned by clarity on significant tariff hikes for the next two years and 5G monetization," it added.

Tariff hikes on the cards?

Vodafone Idea might undertake tariff hikes to bridge the FCF gap, taking larger and more frequent hikes. While having to repay the dues, Vodafone Idea also is facing relentless market share erosion, as 4G and 5G subscribers migrate to competitors with better coverage in outskirt areas. Following the recent tariff hikes, Vodafone is also losing market share to BSNL, which didn't take any price hikes.

"With limited visibility on 5G rollout, it would be difficult for VIL to retain its subscriber base, thereby affecting ARPU growth, in turn hurting cash flows and thereby unable to service its
debt/spectrum obligations – getting trapped in a vicious cycle," noted Nuvama.

The existing competitors such as Bharti Airtel and Jio could see their competitive position improve further, according to Morgan Stanley.

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