Redoing the math: Govt can help correct AGR dues, says Vodafone Idea

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August 17, 2021 4:30 AM

Responding to analyst queries over an earnings conference call, Ravinder Takkar, managing director and CEO, VIL said, “In my view the government has powers to run the country and decide what is the right thing for the country. I believe the government has the powers, though it is helpful if the court also agrees that these errors should be removed.

He also said the company is in active discussions with the investors for its planned Rs 25,000-crore fundraise.He also said the company is in active discussions with the investors for its planned Rs 25,000-crore fundraise.

Vodafone Idea (VIL) on Monday said the Central government is well within its powers to intervene in the matter of correction of arithmetical errors in the calculation of its AGR dues, if the Supreme Court dismisses its review petition. The company filed a review petition with the SC earlier this month after the apex court on July 23 rejected its (as well as that of other operators like Bharti Airtel and Tata Teleservices) appeal for correction of the errors in the calculation of adjusted gross revenue (AGR) dues.

Responding to analyst queries over an earnings conference call, Ravinder Takkar, managing director and CEO, VIL said, “In my view the government has powers to run the country and decide what is the right thing for the country. I believe the government has the powers, though it is helpful if the court also agrees that these errors should be removed.

Takkar also said the option of filing a curative petition, if the need so arises, is also there with the company. “If this review petition gets rejected, we do have the ability to file a curative petition. I hope it does not come to that, but if we have to take that step, we certainly intend to do so,” he said.

However, Takkar stated that the company is hopeful that the SC sees merit in its intentions, which is not to challenge the original judgment on AGR but to only correct the errors and miscalculations of AGR dues. “Somehow, the Court in its judgment felt that we are trying to reopen the judgment or the case, and in some way trying to challenge what was originally passed. We wanted to be very clear, and this is what we have filed in our review petition that it is not our intent to challenge the original AGR judgment, but really for these errors to be fixed,” he said.

On the issue of floor pricing, he reiterated the earlier stand that tariff hikes are critical for the health of the industry, and the stress cannot be removed until this gets solved, while floor pricing is the best way to do that. “The discipline which is required to maintain a healthy pricing is unfortunately never been there in our industry, and therefore floor pricing is the only way to maintain that,” he said.

However, he added that it need not be a permanent feature and only an interim measure till such time that the health of the industry improves and there is discipline in the industry. “We are engaged with the government and explained to them that this is the right approach, and I believe the government is considering it seriously, and I hope to see some action in that in coming weeks and quarters,” Takkar said.

He also said the company is in active discussions with the investors for its planned Rs 25,000-crore fundraise.

With the continuous fall in subscriber numbers, depleting cash flows and ballooning debt, VIL finds itself in a precarious situation, with immediate relief needed either from the government or the company completing its fundraise exercise soon.

Analysts at Jefferies noted, “Vodafone Idea’s 12 million subscriber decline along with 3% q-o-q decline in Arpu, led to 5/26% q-o-q fall in revenues/Ebitda in Q1. VIL’s stress (net debt/Ebitda of 37x) may prompt the government to provide relief to telcos. If VIL continues to be unable to adequately invest in its network, then market share gains for Bharti/Jio will continue”.

VIL has been losing subscribers for 11 consecutive quarters, while gross subscriber additions fell q-o-q to about 15 million in April-June, due to lockdowns on the back of Covid. VIL’s postpaid subscribers fell by 0.7 million to 20 million, the highest quarterly fall over the past four quarters. VIL’s data subscribers fell by 3 million sequentially to 121 million and 4G subscribers by 1 million to 113 million.

VIL’s annualised cash Ebitda fell 26% quarter-on-quarter to Rs 5,100 crore in the June quarter versus Rs 7,000 crore in March quarter. Analysts at Goldman Sachs noted, “As the company has large repayments due starting December 2021, and at the current Ebitda run-rate, we estimate Vodafone Idea could have a Rs 23,800-crore ($3.2 billion) cash shortfall until April 2022.”

“We believe existing operation is unlikely to meet upcoming payouts, and risk of default cannot be ruled out, the much anticipated tariff hike/s and capital infusion have been insufficient,” analysts at ICICI Securities said.

VIL reported a wider net loss on Saturday as its April-June quarter loss expanded yet again, coming in at Rs 7,319 crore versus preceding March quarter loss of Rs 7,023 crore. The gross debt of the company has also increased to Rs 1.9 lakh crore against Rs 1.8 lakh crore in the March quarter. Though insufficient, there has been some improvement in cash and cash equivalents of VIL to Rs 920 crore against Rs 350 crore in the preceding quarter.

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