In a relief to telecom companies, the government announced a slew of measures comprising nine structural reforms and five process reforms for the sector.
On Wednesday, the union cabinet approved a relief package that provides a temporary prohibition (moratorium) on the payment of the future AGR dues and excludes non-telecom revenue from the AGR dues, but prospectively.
After the four year moratorium period, the government will have the option to convert the remaining dues to equity. However, the telecoms won’t decide that.
Additionally, the companies availing of this moratorium will have to pay interest. A marginal cost of funds based lending rate (MCLR) of two percent would be imposed on the companies.
Tough the interest will be applicable in the moratorium, analysts believe spectrum and AGR relief will result in $11 billion cash flow savings till FY25 (to be paid thereafter) for Vodafone Idea which is crucial for its survival and will also cut its urgency to raise tariffs.
“With Vi’s annual interest/government dues/market cap being around Rs 16,000 crore /Rs 1.7 lakh crore/Rs 26,000 crore, the dilution after four years could be significant and pave the way for Vi becoming a PSU,” said IIFL Securities.
This may hamper equity raising from other investors, it added.
“Overall, we view this as a short-term positive for Vi but the industry structure seems to be evolving towards two private players + two PSUs configuration,” the brokerage added.
From FY26, Vodafone Idea would face an annual outgo of around Rs 37,000 crore on AGR and spectrum. Analysts believe the company requires a 2.5x industry revenue jump by FY26 for nil cash burn.
It faces an uphill task to be able to make payments to the government from FY26.
However, the option with telcos to pay interest to the government through equity could come into play and this could pave the way for Vi becoming a PSU, the brokerage said.