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Lifeline for Vodafone Idea

Per media reports, the Supreme Court (SC) has permitted the Centre to reconsider the issue of reassessment for Vodafone Idea (VI)’s AGR dues. This allows the government (GoI) to grant significant relief on AGR dues to VI. However, only ~Rs0.76trn of VI's total debt of ~Rs1.96trn pertains to AGR liabilities. Even excluding AGR dues, VI’s debt of ~Rs1.18trn (largely pertaining to spectrum payment) is high, considering the current EBITDA (Rs92bn in FY25, excluding IndAS-116 impact). Hence, we expect the GoI to take a holistic view on the solvency of the company and, accordingly, structure the relief. While the aforementioned permission by the SC improves VI’s chances of revival, given high leverage, high valuations, and lack of clarity on GoI stance on spectrum debt, we retain SELL on VI and TP of Rs6. On the other hand, we expect the improved chances of survival for VI to aid Indus Towers’s valuations.

SC allows GoI to reconsider Vodafone Idea’s AGR liabilities

The SC has allowed the government to reconsider VI’s AGR liabilities, considering that this is a matter within the policy domain of the Union, that the government itself has a substantial equity, and that the issue is likely to have a direct bearing on 200mn consumers. With this, the GoI will now have enough wiggle room to create a plan for VI’s long-term sustainability. We note that leverage for VI remains higher even without AGR dues, and the government will need to consider plans toward reducing the spectrum debt as well. As this decision is specifically pertaining to VI, considering the peculiar conditions of the company, we see a low chance of the government reversing the current outstanding Rs371bn AGR dues of Bharti Airtel.

Positive readthrough for Indus Towers

We note that Indus Towers is trading at a discount to global peers, on account of concerns regarding long-term sustainability of VI—one of its key clients. While the government has always maintained that it prefers a market structure with three private players and one government player, the SC decision allows it to create a plan for long-term sustainability of the company, thereby increasing chances of survival for VI. With this, we expect the valuation discount of Indus Towers vs global peers to narrow.

Outlook and valuations: Awaiting government decision; expensive valuations

While we see the 27-Oct decision by the SC as a step toward creating a more competitive telecom market in India, we await details on the government’s plans toward resolving VI’s high-spectrum debt. Any policy change toward spectrum costs is likely to potentially benefit other telecom operators, though we await more clarity on this. Notably, VI’s valuations at 13.8x FY27E EV/EBITDA are expensive. We maintain SELL on the stock, considering the high leverage, high valuations, and lack of clarity on government stance on spectrum debt. Our TP of Rs6 is based on 12x multiple to Q2FY28E EBITDA.

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