Vodafone Idea shares jump 10% but Emkay still sees 44% downside: Here's why

Vodafone Idea share price

• Vodafone Idea shares jumped nearly 10% on likely AGR relief and payment
• Cabinet approved a 5-year moratorium on Vodafone Idea's AGR dues
• Emkay Research maintains 'Sell' rating, citing high leverage and downside risk

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The shares of Vodafone Idea (Vi) jumped nearly 10 percent on January 1 on likely AGR relief and Rs 5,836 crore payment from Vodafone Group. Emkay Research however remains bearing on the stock, citing several reasons why it still sees strong downside potential in the stock.

The shares of the company rose to Rs 11.83 apiece on Thursday.

Cabinet approves five-year moratorium on Vodafone Idea AGR dues, say sources:

The Union Cabinet has approved an adjusted gross revenue (AGR) relief package for Vodafone Idea, sources told Moneycontrol. The government has given its nod for a 5-year moratorium on the AGR dues of the telecom giant, they added.

A DoT committee will be formed to give relief to the telco by recalculating and revaluating the AGR dues, including considering interest and penalty reversal if any, the government sources said, adding that the committee may reassess the frozen AGR dues based on audit reports.

The Cabinet approved the freezing of Vodafone Idea's AGR dues worth Rs 87,695 crore, whose payment is now being rescheduled to FY32-FY41, they added. AGR dues of FY18 and FY19 shall be payable by the company over the next five years, the sources said.

Vodafone Idea to get Rs 5,836 crore from Vodafone Group:

Vodafone Idea will receive around Rs 5,836 crore from Vodafone Group as part of re-settlement of a liability claim pact between the two companies, according to regulatory filings of both companies. Under the revised agreement, Vodafone Group promoters will release Rs 2,307 crore over the next 12 months for Vodafone Idea as per the terms agreed in the amendment agreement.

Vodafone Group has also set aside its 328 crore shares held in Vi for the Indian telecom company's benefit.

Emkay on Vodafone Idea:

Emkay Research on January 1 reiterated its ‘Sell’ rating on the shares of Vodafone Idea, with a target price of Rs 6 apiece. This implies a downside potential of more than 44 percent from the stock’s previous closing price.

The domestic brokerage said that the telco’s financial position remains stressed despite repeated relief packages. "Vi's pre-IndAS116 annualized EBITDA is Rs8.98bn, which is 6.7% of its spectrum debt with cash balance of Rs 30.8 bn as of end-Q2FY26. The management gave guidance for capex spends of Rs75-80bn for FY26. With this, leverage remains high even without AGR dues, and the government will need to consider a plan for reducing spectrum debt. We believe that further capital infusion and restructuring of the spectrum liabilities is crucial for long-term sustainability of the company,” it said.

Despite government relief packages, VI’s leverage remains high, Emkay noted. “We believe that the government is taking enough steps to ensure that the company remains solvent. However, to make VI a structurally strong company with manageable leverage, the government will need to make deeper reforms,” it further said, adding that Vi’s valuations remain expensive.

Emkay added that it has maintained its ‘Sell’ rating on the stock due to the high leverage, high valuations, and lack of clarity on government stance on spectrum debt.

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