As per Credit Suisse, the Department of Telecommunications’ (DoT) latest proposal seeking easier terms of statutory payments is ’incrementally positive’ for Vodafone Idea.
However, it added that uncertainty on outstanding dues still prevails given the discrepancy between adjusted gross revenue (AGR) calculations of companies and DoT.
To this end, the company suggests that resolving the discrepancy will take some time (9-12 months) with DoT looking to carry out the detailed audit of telcos’ claim. This can potentially lead to another legal battle if both parties maintain a recalcitrant attitude.
On the latest tranche of payment made by Vodadone Idea towards its principal dues, Credit Suisse said, while the company may be able to sustain over next two years with the spectrum and AGR payment deferment, its cash flow analysis suggests that business viability is under cloud even at Rs 200 average revenue per user (ARPU) (and subscriber base of 280 million) once the deferred spectrum payment resumes in fiscal 2023.
As per Credit Suisse, Vodafone Idea will need strong operational improvement along with meaningful equity infusion to sustain in the long term. It further suggested that Vodafone Idea would need ARPU levels of Rs 145 to meet interest obligation on its debt and ARPU levels of Rs 230 to achieve cash flow breakeven (post financial year 2023).
Further, it added that the key variable for sector viability is mobile pricing where there is limited clarity on Telecom Regulatory Authority of India’s (TRAI) stance on floor pricing.
The analysis is sensitive to subscriber market share assumption where assumption of 280 million has been taken.