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Indian Express
01-07-2025
- Business
- Indian Express
Vodafone Idea's debt crisis: Time to buy or back away?
Investors often chase multibaggers that have grown from small-cap to mid-cap. But what about companies that have fallen from large-cap to mid-cap, losing 80–90% of their value? Do they present an investment opportunity? Sometimes, they do, but the way to look at their fundamentals is different. The focus shifts from revenue and earnings per share (EPS) growth to the balance sheet. Reducing debt and raising new capital takes centre stage. Addressing the so-called 'elephant in the room' is what drives their share price. One such stock is Vodafone Idea (Vi), which has been losing market share to rivals Reliance Jio and Bharti Airtel, and is trading at a 60% discount from its previous peak on June 28, 2024. The 'elephant in the room' in this case is Vi's accumulated interest and penalties on the unpaid spectrum charges and Adjusted Gross Revenue (AGR) dues to the Department of Telecommunications (DoT). Vi's deferred payment obligations now total a staggering Rs 1.83 lakh crore, more than twice its market cap of Rs 78,874 crore and over four times its FY25 revenue of Rs 43,571 crore. This mountain of debt has left Vi struggling to raise funds, invest in 4G and 5G infrastructure, improve services, and contribute to India's digital growth. Vi plans to raise Rs 50,000-55,000 crore to invest in 4G and 5G infrastructure over the next three years, increase subscriber counts, and average revenue per user (ARPU). Last year, it raised Rs 24,000 crore through follow-on public offer (FPO) and equity infusion by promoters and vendors. It used this money to make the biggest capital expenditure of Rs 9,500 crore since the merger of Vodafone and Idea in 2018. This capex slowed the subscriber churn rate. The company is looking to raise Rs 25,000 crore in bank debt to fund its capex. However, the ghost of AGR and spectrum payments from 2021 is affecting Vi's ability to raise debt. What Vi needs is a solution to the Rs 1.83 lakh crore AGR and spectrum obligation that is attracting 8% interest per year. Only the Department of Telecommunication (DoT) can resolve this, but finding a resolution to the problem is easier said than done. 1999-2016: It all began in 1999, when India's telecom sector shifted from a fixed license fee model to a revenue-sharing fee model, leading to a debate between DoT and telecom operators over the definition of AGR. While DoT said AGR includes revenue from both telecom and non-telecom services, operators said it should include only the revenue from core services. The issue reached the Supreme Court. 2016-2018: Meanwhile, the telecom industry witnessed the Jio moment. Reliance Jio Infocomm disrupted the market in 2016 by offering data plans at predatory prices. Before Jio, voice services accounted for 70% of the telecom revenue. But with data plans, voice calls became free. Vi and Bharti Airtel's average revenue per user (ARPU) fell as they were caught in the price war. To sustain, they had to upgrade their network for data, which increased their debt. Wireless Subscriber Base of Reliance Jio, Bharti Airtel, and Vi (in Rs crore) Data needs more spectrum, and Vodafone (411 MHz) and Idea (316 MHz) had a lower spectrum than Bharti Airtel (860 MHz) and Reliance Jio (650 MHz). Vodafone and Idea took the merger route to become India's largest telecom operator by market share in August 2018. However, the merger did not go as expected. Delays in system integration led to low connectivity, slow internet speed, and call drops, costing Vi its subscribers. The AGR and spectrum dues hit the balance sheet 2019-2021: In October 2019, the Supreme Court ruling widened the definition of AGR to include non-telecom revenue and ordered telecom companies to pay Rs 1.47 lakh crore in AGR and spectrum dues demanded by the DoT. Vi and other telcos added significant AGR and spectrum obligations to their balance sheet, with Vi taking the biggest hit of Rs 58,254 crore, followed by Airtel at Rs 43,980 crore.
The Print
10-06-2025
- Business
- The Print
India's myopic view on tax policy hurts FDI. Fix it before it breaks the camel's back
For emerging markets like India, FDI holds the promise of technology transfer, job creation, and overall economic development. The Manmohan Singh government in 2008 relaxed FDI norms by allowing greater foreign investment in sectors such as telecom, defence, and insurance through the automatic route, which improved investor sentiment and resulted in an FDI surge. However inaction on urgent banking sector reforms eventually led to a dip in sentiment and inflows. Investor confidence and FDI inflows surged again in 2014 and 2019 on the back of the National Democratic Alliance (NDA) government's ease of doing business, but enthusiasm has petered out over the last few years. The court's rejection of AGR waiver requests leaves telecom operators with over Rs 80,000 crore in outstanding payments. Similarly, the application of dual taxation will now allow state governments to levy entertainment tax on DTH broadcasters (service tax is already charged by the Central Government as a part of GST). At a time when private investments are already at decadal lows in the domestic market, a myopic view on tax policy may be the last straw that breaks the camel's back. India's net foreign direct investment inflows fell from $10.58 billion in 2023 to $ 0.4 billion in 2024, the sharpest drop in two decades. This reflects global uncertainty, as well as deficiencies in the country's business climate. The Supreme Court's recent rulings dismissing the waiver of interest and penalty pending on the Adjusted Gross Revenue from telecom operators, and judicial sanction to dual taxation on Direct-to-Home services , may further dampen investor sentiment. Tax policies are an important determinant of sentiment, because investors seek stable and predictable tax regimes. In the AGR case, the Supreme Court's retrospective tax compliance requirements have generated significant financial repercussions for telecom companies, potentially even risking bankruptcy for certain operators. Similarly, the imposition of dual taxation and license fee demands on DTH broadcasting creates an added burden on service providers, challenging the industry's viability and potentially leading to higher costs for consumers. These decisions also throw light on the need to review the judiciary's role in economic regulation. Also read: Ease of Doing Business: If World Bank sees beyond Delhi & Mumbai, India will do better In search of tax certainty Despite economic liberalisation, India continues to struggle to develop a consistent tax policy approach for trade and commerce. The United Progressive Alliance (UPA) government's decision to amend the Income Tax Act in 2012 and retrospectively apply it to indirect transfers is a prime example. Besides dampening investor sentiment, the decision also attracted a slew of lawsuits by companies such as the Cairn Group and Vodafone in international courts and the Permanent Court of Arbitration. The NDA government promised reform in its 2014 manifesto, and a full seven years later, passed the Taxation Laws (Amendment) Bill 2021, which nullified the 2012 amendment. Tax reform, then, seems always to follow from sharp economic pains. It is time for more proactive thinking on tax policy, which can no longer be guided only by the limited objective of revenue maximisation or hawkish enforcement to meet steep internal targets. This approach does little to encourage innovation, domestic value generation, or investment, and there is much evidence on offer. The retrospective application of 28 per cent GST on online real-money games in 2024 has already eroded billions of rupees in market value, and generated uncertainty and ambiguity within a high-growth digital market segment. Also read: India's record net FDI plunge reveals a troubling trend—outward FDI beats investing at home A two-step approach to reform As per the International Monetary Fund (IMF)'s Handbook on Tax Law Design and Drafting, the executive should primarily interpret tax laws. This is the case in countries like the United States, where the Internal Revenue Service issues detailed rules, regulations and procedures to interpret the legislation passed by the Congress. However, in the case of India, flawed policy modelling has led to growing judicial intervention in clarifying and settling tax controversies. While courts play a vital role in resolving disputes, they should exercise caution in intervening and correcting market failures in dynamic and competitive markets. Judges must recognise the unique characteristics of these industries and exercise restraint, ensuring their actions support rather than hinder progress. A measured judicial approach is necessary to foster a thriving environment that benefits both industry players and the wider public. Simultaneously, India needs a clear guidance for commercial tax policy, to sustain economic growth. The introduction of the Direct Tax Code is a step in the right direction. But the government should go further. The new wave of capital and technology intensive industries need a new tax compact; one that is pro-growth and sensitive to their needs. This can be achieved by encoding well-known tax principles as the touchstone for both rule-making and enforcement. A well-crafted charter for commercial taxation can lay the foundation for a fairer, more efficient system. Such a charter should ensure that taxation does not distort business decisions or market behaviour by grounding itself in the principle of neutrality – so that decisions are made on economic merits alone. It should prioritise clarity and simplicity, reducing the complexity of tax obligations and making compliance more straightforward. Certainty and stability are equally vital but often ignored. Finally, the charter must be designed to keep pace with modern economic realities, adapting to digital business models that sometimes operate on wafer thin margins but produce outsize economic impact. Samrridhi Kumar and Anugya Singh are analysts at Koan Advisory Group. Views are personal. This article is part of ThePrint-Koan Advisory series that analyses emerging policies, laws and regulations in India's technology sector. Read all the articles here. (Edited by Zoya Bhatti)
Mint
04-06-2025
- Business
- Mint
Vodafone Idea share price falls for second consecutive day. Here's why
Vodafone Idea share price continues to fall for second consecutive day on Wednesday after the telecom company said it is actively in discussions with the central government to seek relief regarding its long-pending Adjusted Gross Revenue (AGR) dues. Vodafone Idea stock fell over 1.33 per cent in early trades, however, recovered quickly rising nearly a per cent. At 9:55 am, the stock was trading at ₹ 6.68 apiece on National Stock Exchange (NSE). On Tuesday, Vodafone Idea shares saw a significant decline up to 4 per cent to close at ₹ 6.77. Vodafone Idea, currently grappling with financial difficulties, is in discussions with banks to secure debt funding aimed at supporting its long-term growth, according to CEO Akshaya Moondra. He noted that lenders would require transparency regarding the company's outstanding dues to the government before considering any loan approvals. Moondra further stated that the telecom firm is still negotiating with the central government for a practical solution to the Adjusted Gross Revenue (AGR) issue. He stressed that since the matter falls under policy, the government should have complete discretion to offer relief, without being constrained by judicial oversight. Highlighting the financial strain on the company, Moondra cited India's low Average Revenue Per User (ARPU) and unsustainable data tariffs as major challenges. He advocated for a pricing structure where high data consumers pay more, emphasizing that the sector's returns currently fail to meet capital costs. This comes after a significant blow from the Supreme Court, which recently denied the company's plea for relief, intensifying the crisis for the debt-laden operator. Vodafone Idea is burdened with AGR dues of nearly ₹ 30,000 crore and continues to lose market share. According to TRAI data, the company lost 6.47 lakh subscribers in April, reducing its total user base to 20.47 crore. Before the Supreme Court ruling, the company had urgently appealed to the telecom department, warning that without timely support from the government, it may not be able to continue operations beyond FY26. Despite narrowing its net loss to ₹ 7,166.1 crore in Q4 FY25, Vodafone Idea remains reliant on external funding. Its board has recently approved a fundraising plan of up to ₹ 20,000 crore, which is subject to shareholder and regulatory approval. Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
Economic Times
03-06-2025
- Business
- Economic Times
Vodafone Idea share price target above Rs 12? What brokerages say
Vodafone Idea shares: The brokerage firm observed that VIL's Q4FY25 results fell short of expectations. The company also saw a loss of 1.6 million subscribers during the quarter, which was lower than the 5.1–5.2 million lost in Q2 and Q3, but slightly better than UBS's forecast of a 1.8 million decline. Tired of too many ads? Remove Ads UBS: Buy| Target price: Rs 12.10 Tired of too many ads? Remove Ads Nuvama: Hold| Target price: Rs 7.5 Macquarie: Underperform| Target price: Rs 6.50 Motilal Oswal: Sell| Target price: Rs 6.5 Tired of too many ads? Remove Ads Amid persistent concerns over subscriber erosion and a heavy debt burden, Vodafone Idea (VIL) shares have drawn the attention of several brokerage firms, with some projecting the stock could rise to as high as Rs company posted soft Q4FY25 results wherein the consolidated net loss was reported at Rs 7,166.1 crore for the quarter ended March 31, 2025 (Q4FY25), marking a 6.6% improvement from the Rs 7,674.59 crore loss reported in the same quarter last the company is not able to see any visibility on relief on its long-standing Adjusted Gross Revenue (AGR) dues, amounting to nearly Rs 30,000 this, analysts across brokerage firms have weighed in on their views about the stock. Here's what they say:The brokerage firm noted that VIL's Q4FY25 results were below their expectations. Additionally, the company lost 1.6 million subscribers in Q4 (vs a loss of 5.1-5.2 million in Q2/Q3 and UBS's estimate of 1.8 million subscriber loss in Q4). Overall, the results were slightly lower than the estimates and UBS noted that an eye needs to be kept on the fundraise updates, capex plan, 5G coverage and any potential AGR / spectrum relief to Nuvama, Vodafone Idea reported in-line Q4FY25 results, with revenue declining 0.9% quarter-on-quarter due to muted ARPU growth, partly attributed to fewer working days in the observed that while subscriber losses have moderated to pre-tariff hike levels, they still impede the company's recovery. The delay in debt funding remains a major overhang on VIL's viability. The brokerage cut its FY26E and FY27E EBITDA estimates by 7% and 4% respectively, citing further dilution from the government's equity holding. VIL is valued at 11x FY27E EV/ brokerage firm Macquarie reported that VIL posted a weak set of Q4FY25 results, missing estimates due to continued subscriber erosion and higher interest burden. VI's net subscriber base declined by 1.6 million quarter-on-quarter to approximately 198 million, while ARPU rose marginally by 0.6% to Rs noted that the company's government dues stood at around US$22.5 billion, with US$4.3 billion of spectrum dues converted to equity, leading to a 49% government shareholding. In contrast, bank and financial liabilities were lower at US$0.3 billion, and the cash balance stood at US$1.2 billion. The board has approved a Rs 200 billion (US$2.3 billion) fundraise via equity, debt, or a hybrid brokerage highlighted that the ongoing erosion in subscribers indicates persistent structural challenges, and despite the government being the largest shareholder, any further equity infusion remains uncertain. Macquarie continues to see industry-wide tailwinds from tariff hikes benefiting Bharti Airtel and Reliance Industries, which it maintains as Outperform-rated Oswal also highlighted that Vodafone Idea continues to lose market share to peers due to weaker ARPU conversion, a weaker subscriber mix, and high churn rates. The telco is planning a significant capex cycle of Rs 50,000–Rs 55,000 crore over the next two to three years to bridge the network gap with competitors. However, the brokerage noted that regaining lost subscribers will remain challenging, given rivals' stronger cash flows and deeper financial Oswal added that Vodafone Idea's network investments are heavily reliant on fresh debt funding, which itself hinges on continued AGR relief and government support, with an estimated Rs 20,000 crore annual cash shortfall projected through FY26–31. Stabilizing the subscriber base and securing further government relief are seen as crucial to the company's long-term survival.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
India Today
19-05-2025
- Politics
- India Today
19 May 2025: Temple-Mosque Survey, Spy Ring Busted & Airtel, Vodafone Blow
India Today Podcasts Desk UPDATED: May 19, 2025 19:12 IST On today's News at 7, Prateek Lidhoo brings you the top stories of Monday, May 19. The Allahabad High Court has upheld the order to survey the Shahi Jama Masjid in Sambhal, dismissing the mosque committee's plea amid an ongoing dispute over claims of a demolished temple. A major Pakistani spy network has been busted, with arrests across Haryana, Punjab, and Uttar Pradesh revealing deep links to the ISI. The Supreme Court has rejected Madhya Pradesh Minister Vijay Shah's apology for his communal remarks against Army officer Col. Sofiya Qureshi, calling his statement insincere and setting up a special probe team. And finally, telecom giants Vodafone Idea and Airtel suffered a major blow as the Supreme Court refused to waive interest dues on their Adjusted Gross Revenue liabilities. Stay informed with News at 7 — your daily news wrap from India Today Podcasts. Produced by Prateek Lidhoo Sound mix by Suraj Singh
