Budget 2025: AGR Relief May Boost Vodafone Idea, Airtel
The Indian government is considering waiving a major chunk of the adjusted gross revenue (AGR) dues of Vodafone Idea Ltd. and Bharti Airtel Ltd., which may give both the debt-ridden telecom operators significant relief. This may improve the financial prospects and stock performance of the two companies substantially, Citi said. This move could be announced in the Union Budget on February 1, 2025.
This will mean waiving 50% of the interest and 100% of penalties on AGR dues, keeping the principal amount intact. The reduction in the outstanding AGR liability of Vodafone Idea is estimated to be around Rs 52,000 crore, which works out to about 75% of its total AGR dues, equivalent to a debt reduction of about 25%. The relief will also mean an upside of Rs 7 per share for Vodafone Idea. Likewise, Bharti Airtel might experience a decline of Rs 38,000 crores in liabilities that could have a potential upside of about 4% in equity.
This development may be a watershed moment for Vodafone Idea. The company has been facing mounting financial challenges, compounded by the Supreme Court's September 2024 dismissal of its curative petition regarding AGR dues. This relief might just be what the doctor ordered for much-needed cash flow to pay off debt repayments, especially with looming government spectrum and AGR payment obligations.
Citi has put Vodafone Idea's target price at â¹13 per share, keeping in mind the over-leveraged balance sheet. The rating reflects the vulnerabilities of the company's financial situation and the critical need for continued government support. Operational recovery is assumed post-fundraising efforts, though Vodafone Idea remains classified as 'high risk'.
Bharti Airtel should benefit from potential relief, and the brokerage maintains its target price of Rs 1,900 per share. However, risks include delays in tariff hikes, increased competition, higher-than-expected capital expenditure on 5G, and underperformance in specific segments like homes and DTH.
Again, potential AGR waiver could also go in favor of Indus Towers Ltd. because the company derives considerable sustenance from the strength of financial stability at the hands of telecom clients. Since Vodafone Idea's uncertainties have come down while the outlook for the Indian telcos sector is looking promising, Citi has placed Indus Towers on 'Upside Catalyst Watch'. The bank has pegged the target price for the entity at Rs 485, showing optimism over its prospects.
If implemented, this AGR relief would be a turning point for the Indian telecom industry, particularly for Vodafone Idea, which has been unable to raise funds due to the mounting debt. Bharti Airtel, though less stressed financially, would benefit incrementally and further consolidate its market position.
The Union Budget announcement is yet to come, and all eyes are on whether the government will deliver this game-changing relief, which may well change the contours of the telecom sector.
