Vodafone Idea shares faced a sharp 15% decline, hitting the lower circuit after the Supreme Court of India dismissed telecom companies’ plea for the re-computation of adjusted gross revenue (AGR) dues. The decision marks a significant setback for the beleaguered telecom company, which had been hoping for relief in the calculation of its outstanding dues to the government. The drop in Vodafone Idea’s share price reflects mounting investor concerns over its financial health and ability to meet payment obligations.
Telecom operators, including Bharti Airtel and Vodafone Idea, had jointly filed curative petitions with the Supreme Court, arguing that the Department of Telecommunications (DoT) made substantial errors in computing the AGR demands. Despite these claims, a Supreme Court bench led by Chief Justice DY Chandrachud, alongside Justices Sanjiv Khanna and BR Gavai, rejected the petitions on Thursday, solidifying the original judgment in favor of the DoT’s computation.
Impact of AGR Judgment on Vodafone Idea Shares
The Supreme Court’s rejection of the plea for recalculating AGR dues has had an immediate and detrimental effect on Vodafone Idea shares. Following the court’s decision, the stock dropped 15%, reaching ₹10.96 per share, locking into the lower circuit. The AGR dispute has been a long-standing issue in India’s telecom industry, with telecom companies required to pay dues related to revenue sharing agreements with the government. In 2019, the Supreme Court ruled that the telecom companies must include non-telecom revenues in their AGR calculations, substantially increasing the amount owed by Vodafone Idea.
Vodafone Idea had been seeking a review of this decision, citing inaccuracies in the DoT’s demand. However, with the Supreme Court dismissing the request, the company’s financial burden remains unchanged, exacerbating its already precarious situation. As of FY23, Vodafone Idea has substantial outstanding dues related to AGR and spectrum payments, putting further pressure on its cash flow.
The financial outlook for Vodafone Idea worsened after the Supreme Court’s ruling, as it leaves the company with limited options for restructuring its debts. This could negatively impact investor confidence, as reflected in the recent plunge in its share price. According to Seema Srivastava, Senior Equity Analyst at SMC Global Securities, “The Supreme Court’s rejection of the re-computation plea has further worsened the outlook for Vodafone Idea shares. Investor confidence is shaken, and this sharp decline is likely a result of increasing skepticism about the company’s ability to manage its heavy debt load.”
Brokerages Maintain ‘Sell’ Ratings on Vodafone Idea Share
Several brokerages have expressed bearish views on Vodafone Idea’s stock, maintaining their ‘Sell’ ratings following the Supreme Court’s verdict. Global investment firm Goldman Sachs, in a report earlier this month, retained its ‘Sell’ rating on Vodafone Idea shares with a target price of ₹2.5 per share. This target represents a potential decline of over 80% from the current stock price. The firm highlighted concerns around Vodafone Idea’s upcoming payments related to AGR dues and spectrum auctions, beginning in FY26.
Goldman Sachs estimates that Vodafone Idea will require a significant boost in its average revenue per user (ARPU) to remain cash flow neutral. According to their analysis, ARPU would need to rise by ₹200-270 (120%-150%) from its December 2024 levels to stabilize the company’s financial position. However, the brokerage sees this as an unlikely scenario in the near to medium term. Without an equity conversion of dues by the government, they predict that Vodafone Idea will face negative free cash flow until at least FY31.
In addition to Goldman Sachs, Deutsche Bank has been highly critical of Vodafone Idea’s prospects, issuing a low target price of ₹1.50 per share. This pessimistic forecast is a stark contrast to more optimistic projections from Ambit Capital, which has set a target as high as ₹23 per share. The divergent views among brokerages reflect the high level of uncertainty surrounding Vodafone Idea’s future performance.
On the other hand, Bharti Airtel, one of Vodafone Idea’s main competitors, has remained relatively unaffected by the Supreme Court ruling, with its shares rising slightly by 0.65% to trade at ₹1,665.65 on the NSE. Airtel’s more diversified revenue streams and stronger financial position have helped it weather the AGR storm more effectively than Vodafone Idea.
What’s Next for Vodafone Idea Shareholders?
The dramatic fall in Vodafone Idea shares has prompted investors to reassess their strategy. Anshul Jain, Head of Research at Lakshmishree Investment and Securities, offered cautious advice to shareholders, recommending a strict stop loss at ₹11.50 per share. Jain suggests that investors should exit the stock during any relief rally, as the technical outlook for Vodafone Idea shares remains grim. He further warned that if the stock closes below ₹11.50, it could drop further to levels as low as ₹5.90 to ₹5.70 in the short to medium term.
Meanwhile, the company is expected to continue facing mounting financial challenges, including its AGR and spectrum-related dues. The Indian government has the option to convert part of these dues into equity, which could provide some relief to Vodafone Idea. However, even with this possibility, the path to recovery remains fraught with obstacles. The company will need to significantly increase its revenue generation, particularly through raising ARPU, a difficult task given the competitive nature of the Indian telecom market.
As of 12:00 pm on Thursday, Vodafone Idea shares were trading at ₹10.96, locked at the lower circuit of 15%, signaling widespread concern among investors. In contrast, Bharti Airtel shares maintained a positive trajectory, demonstrating the varying fortunes of India’s telecom giants.
In conclusion, Vodafone Idea shares face continued pressure following the Supreme Court’s decision to reject the re-computation plea for AGR dues. While the company remains hopeful for some form of government intervention, the challenges ahead are daunting, and investor sentiment remains highly cautious.
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