Business
Vodafone relief offers breathing room, but cash flow challenges persist: Piyush Pandey
Speaking to ET Now, Piyush Pandey from Centrum India highlighted that the relief primarily ensures survival and eases immediate cash flow pressure, particularly through the moratorium on adjusted gross revenue (AGR) dues.
“Yes, it is a significant relief in terms of cash flow for the next 10 years, especially on the AGR dues front. The dues have been frozen for the next 10 years, and the payments are broadly minimal at around ₹100 crore per annum,” Pandey said.
However, he pointed out that the company’s challenges are far from over. Vodafone still needs to service hefty spectrum dues, which could amount to nearly ₹15,000 crore annually, against a current cash EBITDA of about ₹10,000 crore.
“So, even after this cash flow relief on AGR dues, they still need to raise a large amount of funds. They might also need to implement tariff hikes in the coming months to manage spectrum payments and ramp up capex on the 4G and 5G front to catch up with peers. So, of course, this is a significant relief, but more still needs to be done,” he added.
Another key development emerging from Vodafone’s announcement is the formation of a Department of Telecommunications (DoT) committee that will reassess the company’s AGR dues payable beyond 2036. This move could potentially lead to further reductions in liabilities.
“Current AGR dues outstanding include almost 50% principal, with the remaining 50% comprising interest and penalties. So, we can expect some significant reduction in AGR dues once that amount is finalised,” Pandey said.While the exact quantum of relief remains uncertain, he believes the existing moratorium itself is meaningful. “Even if we exclude further reductions, this 10-year moratorium remains significant. Post this relief, Vodafone should find it easier to raise another round of funding and manage its near-term capital requirements,” he noted.
From a valuation standpoint, Pandey said much of the optimism is already reflected in the stock price. “My current target price is ₹10 per share, and we maintain a neutral rating. The stock has already run up over the last three to four months in anticipation of this relief,” he said.
Going ahead, the company’s performance will hinge on execution. “It now depends on how they raise the next round of funds, how they ramp up 4G and 5G capex, and most importantly, whether they are able to add customers, as they continue to lose market share. Once they reach a certain level of capex and start adding customers, that could act as a trigger for valuations and the stock price,” Pandey said.
While the government’s intervention has clearly prevented an immediate crisis, Vodafone Idea’s long-term competitiveness will depend on fresh capital, network expansion and its ability to stem subscriber losses in an increasingly consolidated telecom market.
