IGI Logo

AGR relief a positive; though still not out of the woods

* The Department of Telecom (DoT) has provided significant relief on Vodafone Idea’s (Vi) AGR dues by: i) waiving off interest beyond Dec’25, ii) providing significant relaxation on payment timelines (effectively a 10-year interest-free moratorium), and iii) constituting a committee to reassess the AGR dues.

* We believe the relief measures indicate GoI’s steadfast commitment to maintaining a 3+1 market structure in the Indian telecom industry.

* The relief measures are a significant positive for Vi, with the NPV of AGR dues cut by ~73% to ~INR240b, on our estimates, with potential for further relief on the base AGR dues. This should enable Vi’s long-pending debt raise and increase capex over the medium term.

* However, Vi still owes ~INR1.23t to GoI toward deferred spectrum liabilities, with large ~INR62b/INR166b/INR270b annual repayments over FY27/FY28/FY29-32, and obtaining a similar relief (interest waiver, further deadline extensions) on the same would not be straightforward.

* Further, despite a potential increase in capex, regaining/retaining market share would remain a tall ask, given Vi’s competitors’ superior offerings and FCF generation.

* We raise our FY27-28 pre-INDAS 116 EBITDA estimates by ~2-4%, driven largely by improved subscriber retention.

* We reiterate Neutral on Vi with an unchanged TP of INR11/share, premised on 14x FY28 reported EV/EBITDA (implies ~22x FY28 pre-INDAS EV/EBITDA), a significant premium to larger peers.

* AGR relief for Vi is also sentimentally positive for Indus Towers (Indus); but at CMP, we believe risk-reward remains uncompelling (link). We reiterate our Neutral stance on Indus with an unchanged TP of INR400/share.

DoT provides significant relief to Vi on AGR dues

* The DoT has frozen Vi’s AGR dues (for the period FY07-19) as of 31-Dec’25. The frozen AGR amount stands at ~INR877b, as per earlier media reports.

* Further, the DoT has provided significant relief in payment terms, with Vi liable to pay a modest ~INR1.24b over FY26-31 and ~INR1b over FY32-35. Effectively, this amounts to a 10-year moratorium, and, more importantly, comes without any additional interest accrual during the period.

* Thereafter, Vi has to pay the remaining AGR amount in equal annual installments over FY36-41.

* Further, a DoT-constituted committee will reassess the AGR dues, and the reassessed amount would have to be paid in equal installments over FY36- 41.

Relief implies ~73% AGR waiver in disguise; big positive for Vi

* We believe the freezing of AGR dues, without any further interest accumulation, is a big positive in itself.

* Moreover, relaxed AGR repayment timelines provide significant cashflow relief for Vi over the next 10 years and should help in the closure of Vi’s long-pending debt fund raise.

* Based on the current AGR amount (~INR877b) and the announced relief measures, we compute the actual AGR relief from GoI at ~INR542b (or ~INR5/share for Vi), ~62% cut in AGR dues on an NPV basis (at an 8% interest rate).

* The NPV of AGR dues (based on 11% interest rate or WACC) is even lower at ~INR240b (a cut of ~73% vs. the original ask). Any reassessment on the base AGR dues would lead to an even higher relief for Vi.

* The latest relief measures are a big positive for Vi and resolve the long-pending AGR overhang to a great extent.

* AGR relief should aid Vi’s long-pending fund raise and enable it to raise its capex in line with the earlier guidance of ~INR500-550b over FY25-28.

Not out of the woods yet; Vi’s revival requires further relief measures

* However, we note Vi also owes ~INR1.23t to GoI toward deferred payment liabilities (DPL) for past spectrum auctions, with repayments of INR62b/INR166b in FY27/FY28, and further rising to ~INR270b from FY29 onwards.

* Given that these dues pertain to spectrum auctions conducted under specific guidelines and peers have repaid bulk of these dues, the options for GoI to provide similar relief (interest waiver, further timeline extension) on these dues are limited.

* An equity fund raise for Vi could pave the way for GoI to further convert Vi’s spectrum dues into equity. However, this would require a large fundraise with potential large dilution post the fund raise, which could prevent any meaningful upside for Vi’s minority shareholders.

* Moreover, we believe regaining subscribers from competitors with superior offerings and cash flow would remain a tall ask for Vi.

Valuation and view

* Significant relief on AGR dues signals the continuation of GoI’s steadfast support for maintaining a 3+1 market construct in the Indian telecom industry.

* With AGR repayments no longer a concern (at least till FY35), we believe Vi’s long-pending debt raise should close soon, which should help Vi ramp up its capex plans in line with the earlier guidance of ~INR500-550b over the next few years.

* AGR relief and potential debt raise are undoubtedly positive developments for Vi. However, the company still owes ~INR1.23t to GoI toward deferred spectrum liabilities, with large ~INR62b/INR166b/INR270b annual repayments over FY27/FY28/FY29-32, and obtaining a similar relief (interest waiver, further deadline extensions) on the same would not be straightforward.

* Further, despite a potential increase in capex, regaining/retaining market share would remain a tall ask, given Vi’s competitors’ superior offerings and FCF generation.

* We raise our FY27-28 pre-INDAS 116 EBITDA estimates by ~2-4%, driven largely by improved subscriber retention. Our FY27-28 earnings increase sharply, primarily due to lower interest costs (AGR dues no longer interest-bearing).

* Our TP remains unchanged at INR11/share, premised on ~14x Mar’28 reported EV/EBITDA (implies ~22x Mar’28 pre-INDAS 116 EV/EBITDA), which is at a significant premium to Vi’s larger peers.

* We remain Neutral on Vi as we believe several other relief measures, such as the rationalization of spectrum dues, debt fund raise, tariff hikes, and reduction in competitive intensity on subscriber acquisitions, are required for Vi’s revival.

* Recent relief measures for Vi are sentimentally positive for Indus and should: i) enhance visibility on Vi’s tenancy additions (though already built into estimates), and ii) enable reinstatement of dividends. However, at CMP, we believe riskreward is not attractive and reiterate Neutral on Indus with an unchanged TP of INR400/share.

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412