IIFL Securities in its fresh note on telecom sector said that the government is working on a potential partial waiver of AGR dues, which would bring down the liabilities of Bharti Airtel Ltd and Vodafone Idea Ltd (VIL) by Rs 38,000 crore and Rs 52,000 crore, respectively. A few reports suggest the relief could be announced in the Union Budget on February 1. In the event of a relief, IIFL Securities expects that the per share upside can be Rs 62, Rs7 and Rs 29 for Bharti Airtel, VIL and Bharti Hexacom Ltd, respectively.
"This relief, in addition to the recently announced bank guarantee waiver, brightens the chances of Vodafone Idea's Rs 25,000 crore debt raise and completion of its Rs 50,000-Rs 55,000 crore capex programme through FY27. While this would pave the way for VIL to execute its revival plan, we estimate that the cash drain even with the Rs 11,500 crore per annual potential relief would still be significant in the next few years (with liberal ARPU assumptions)," IIFL Securities said,
The domestic brokerage said there is a high chance of government converting a part of VIL's dues into equity. The Vodafone Idea stock could see a short-term pop, it said adding that at 16 times its target EV/Ebitda on FY27 estimates, its March 2026 fair value for Vodafone Idea comes to Rs 10 per share for post potential AGR relief. It remains positive on Bharti Airtel, Indus Towers and Bharti Hexacom.
Its calculations based on waiver of 50 per cent of interest and 100 per cent of penalties and interest on penalties yield somewhat lower numbers at Rs 33,200 crore and Rs 44,500 crore, respectively .
"Considering the intricate nature of the calculations, we stick to the numbers mentioned in the media reports. The relief numbers amount to 100 per cent/70 per cent of Bharti’s/Vi’s total AGR liabilities. This percentage is higher for Bharti since it has prepaid a higher proportion of its AGR dues," IIFL said.
Vodafone Idea's free cash flow (FCF) generation in the next few years will still be inadequate to meet government payout obligations and a equity conversion is likely.
IIFL considers a scenario in which VIL closes its debt-raise by end-FY25 and executes its planned capex programme. Even after assuming a modest growth in subscriber addition and optimistic average revenue per user (ARPU) increases, the domestic brokerage estimates that VIL would face a cumulative cash deficit of Rs 7500 crore and Rs 40,600 crore by end-FY26 and 27ii.
"In other words, VIL will have to either raise Rs 40,600 crore in fresh debt/equity or convert government dues into equity by FY27. As per the existing relief package guidelines, the government has the option to convert Rs 12,000 crore/Rs 17,000 crore of VIL's dues into equity," it said.
IIFL said it does not see any risk to future tariff hikes since the relief measures only partly address the challenge of making VIL a competitive third player. A significant increase in revenue is a key requirement to ensure VIL's financial health.
"We stick to our view that there is likely to be another round of 15 per cent-plus tariff hikes in late 2025. However, we will not be surprised if entry level plans see no tariff hikes, with the increase restricted to other plans," it said.