20 February 2020
New delhi: Vodafone Idea's situation remains extremely precarious given its net debt/EBITDA of 20 times, analyst firm Citi has said in a report.
The company has admitted that its ability to continue as a going concern remains at risk in the absence of relief on its over $6billion AGR liability. While some green shoots were visible in 3Q (+2 per cent qoq revenue growth, 4G sub adds accelerated, tariff hike benefits to be visible from 4Q), this could come to naught without any relief.
The company has, for now, announced that it intends to make a part-payment towards its dues shortly (quantum still being assessed), the report said.
The deleveraging depends on Relief on the company's AGR liability, either in terms of quantum or in payment terms, further relief measures from the government which could reduce levies and improve the balance sheet and cash flows and better than expected execution on synergy extraction and better than expected pace of 4G subscriber additions.
The risks Vodaofne Idea currently faces are that the company being made to bear the entire AGR liability, depressed India mobile revenues resulting from competitive intensity worsening and increase in subscriber churn and lower than expected pace of 4G subscriber additions.
We struggle to see what the next recourse could be for VIL with most legal options appearing to be exhausted. While it may still be possible for the government to offer relief perhaps via some legislative/policy action if it so chooses, we are yet to see any such indication or willingness from the government. Given the heightened uncertainty, Potential market share gains on further industry consolidation could drive upsides for Airtel & RIL while further tenancy exits could create downside risks for Infratel (Neutral). We keep our estimates unchanged for the moment as the situation remains extremely fluid and uncertain.
The report said Airtel has begun clearing its dues following the strong and unforgiving stance that SC has adopted. Airtel has made a partial payment of $1.4billion of its $5billion dues and will pay the balance well before the next date of hearing on March 17 post self-assessment. Following its $3billion capital raise in Jan and $2+billion of cash on books as of Dec, this should not be a stretch for the company.