Today(19th Sept), Vodafone Idea shares dropped 15% after the Supreme Court rejected telecom companies’ curative pleas for re-computation of AGR dues. The court’s decision upheld the government’s stance, dismissing the telcos’ claims of “arithmetic errors” in the dues calculation.
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NEW DELHI: Vodafone Idea shares dropped by 15% after a key Supreme Court ruling on adjusted gross revenue (AGR) dues, significantly affecting the company’s market performance. The stock decline followed the court’s rejection of a plea from telecom firms, including Vodafone Idea and Bharti Airtel, requesting a re-computation of their AGR dues.
The curative petitions were filed by the telecom giants to address what they described as “arithmetic errors” in the Department of Telecommunications (DoT)’s calculation of AGR dues. However, in a major setback for the telcos, the Supreme Court bench comprising Chief Justice DY Chandrachud, Justice Sanjiv Khanna, and Justice BR Gavai dismissed these pleas. This decision reaffirmed the government’s stance on the telecom companies’ obligations under AGR.
Telecom companies have been embroiled in a long-standing legal battle over the definition and computation of AGR, which is the basis for revenue-sharing between telecom firms and the government. Vodafone Idea, Bharti Airtel, and other players filed curative petitions, urging the court to reconsider its 2019 ruling. They claimed that DoT made “a grave error” in calculating their AGR dues, leading to “arbitrary” penalties.
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Reports indicate that the DoT calculated the AGR dues to total over Rs. 1 lakh crore, with Airtel allegedly owing Rs. 43,980 crore and Vodafone Idea facing Rs. 58,254 crore in dues. The telcos, however, provided vastly different numbers, claiming they owed only Rs. 13,004 crore (Airtel) and Rs. 21,533 crore (Vodafone Idea). The companies argued for a recalculation, contending that non-core revenue should be excluded from the AGR computation.
However, the Supreme Court dismissed these arguments, sticking with its earlier judgment. The court’s 2019 decision ordered telecom companies to pay Rs. 92,000 crore in AGR dues within three months, a verdict that shook the telecom industry.
The Supreme Court’s decision has had an immediate and significant impact on Vodafone Idea’s stock. According to Seema Srivastava, Senior Equity Analyst at SMC Global Securities-
“The Supreme Court’s rejection of the telecom companies’ plea to re-compute Adjusted Gross Revenue (AGR) has further weakened the prospects for recovery in Vodafone Idea shares, leading to the sharp decline in the stock today.”
The stock has been under pressure even before this verdict. Earlier, a global brokerage had already issued a ‘Sell’ call on Vodafone Idea shares, with a downside target of Rs. 2.50 to Rs. 2.0 per share, signaling weak investor confidence.
Goldman Sachs, a leading foreign brokerage, also maintained a ‘Sell’ rating on Vodafone Idea shares earlier this month. The brokerage firm set a target price of Rs. 2.5 apiece for the stock, implying a sharp potential decline of 83% from its prevailing price at that time. According to Goldman Sachs-
“Vodafone Idea faces significant AGR and spectrum-related payments beginning in FY26. While the government could potentially convert some dues into equity, we estimate that ARPUs would need to increase by Rs. 200-270 (120%-150% from December 2024 estimates) for the company to achieve sustainable free cash flow neutrality, which we consider unlikely in the medium term.”
There are conflicting opinions among market analysts about the future of Vodafone Idea. While some brokerages have issued dire predictions, others remain cautiously optimistic. Deutsche Bank has set a target price as low as Rs. 1.50 per share for Vodafone Idea, while Ambit Capital has offered a more optimistic outlook with a target price of Rs. 23 per share.
Anshul Jain, Head of Research at Lakshmishree Investment and Securities, shared insights on how investors should approach the stock:
“Vodafone Idea shares have immediate support at Rs. 11.50 per share. Investors are advised to maintain a strict stop loss below this level and consider exiting during any relief rally. However, if the stock closes below Rs. 11.50, it could drop further to Rs. 5.90 to Rs. 5.70 in the short to medium term.”
The AGR dispute has been ongoing for nearly two decades, with the government and telecom operators locked in disagreement over what should be included in AGR calculations. The Supreme Court, in its 2019 judgment, sided with the government, stating that AGR should include all revenue, including non-telecom-related revenue streams.
This decision hit telecom companies hard. Both Vodafone Idea and Bharti Airtel reported record losses following the ruling. In July 2022, Airtel deferred the payment of Rs. 3,000 crore in AGR dues, opting to spread the payment over four years. Similarly, Vodafone Idea deferred Rs. 8,837 crore in additional AGR dues for two financial years beyond 2016/17, which were not included in the Supreme Court’s original order.
