Vodafone Idea Shares Face Major Setback: Telecom companies are grappling once again with the looming threat of Adjusted Gross Revenue (AGR) dues, and the recent ruling from the Supreme Court has dealt a significant blow to their hopes. Vodafone Idea, in particular, is reeling from this decision, with its market value plummeting by approximately Rs 13,500 crore within just one hour of the ruling. The stock closed down 19% at nearly Rs 10.50, marking its most significant decline since January 2022. Similarly, Indus Towers experienced a notable drop of around 9%, reflecting the widespread impact of the Supreme Court’s decision. What exactly led to this drastic situation, and what does it mean for the future of Vodafone Idea? Let’s delve deeper.
Understanding AGR Dues
To grasp the full extent of the situation, it is crucial to understand what AGR dues entail. The conflict between the government and telecom companies regarding AGR has been ongoing since 1999. AGR represents ‘Adjusted Gross Revenue’, which constitutes a significant aspect of telecom firms’ income. It falls into two categories:
- Telecom Services Income: This includes revenue generated from services such as calls, SMS, and internet data.
- Non-Telecom Income: This encompasses any earnings beyond telecom operations, such as interest from bank deposits and rental income from properties.
The Dispute Unfolds
The government mandated that both types of income be combined to calculate the fees for licensing and spectrum usage. This led to a long-standing dispute as telecom companies advocated for fees based only on telecom service income, while the government insisted on including total revenue. After extensive legal battles, the Supreme Court’s ruling in 2019 sided with the government, compelling telecom firms to pay dues on the entire revenue basis, amounting to thousands of crores.
Current Financial Strain
As it stands, Vodafone Idea faces a staggering ₹70,300 crore in dues, while Bharti Airtel owes about ₹36,000 crore. In a desperate bid for relief, Vodafone Idea submitted a curative petition to the Supreme Court, which was supported by other telecom companies claiming inaccuracies in the calculation of AGR dues. Unfortunately for them, the Supreme Court dismissed the petition, citing a lack of substantial evidence in the presented documents.
Outlook for Vodafone Idea Shares
Following the Supreme Court’s ruling, Vodafone Idea has been left in a precarious position, grappling with declining customer numbers and an escalating financial crisis. Analysts suggested that a favorable decision could have potentially driven the stock price up to around ₹5, whereas the current downturn has sent the shares plummeting below ₹11, a price point at which the company previously raised about ₹18,000 crores from investors in April.
What Should Shareholders Do?
In light of recent developments, stakeholders in Vodafone Idea face uncertainty. According to a recent report by Goldman Sachs, the company’s cash flow might remain negative until 2031, warning that stock prices could further plummet by 83% to approximately ₹2.5. Other market experts echo this sentiment, indicating a bleak outlook for the stock.
Market Insights
Sachchidanand Uttekar of Tradebulls indicates that the stock has breached crucial support levels, predicting it may decline further to around ₹7. Likewise, Jigar Patel from Anand Rathi notes a bearish trend, highlighting that the company’s 200-day exponential moving average has been disrupted, suggesting it may be prudent to steer clear of investments in the current environment.
Conclusion
The telecommunications sector, particularly Vodafone Idea, is currently facing tumultuous challenges as they grapple with mounting AGR dues and dwindling market confidence. As the situation unfolds, the trajectory of Vodafone Idea shares remains highly uncertain, compelling stakeholders to remain cautious.
