According to Goldman Sachs, Vodafone Idea could potentially save Rs 58 billion in cash flows annually if its adjusted gross revenue (AGR) liability was lowered to its self-assessed value.
However, even at the lower assessed amount, the company would remain free cash flow (FCF) negative, Goldman Sachs said and added that average revenue per user (ARPU) would need to be at 1.7x of current levels for Vodafone Idea to be FCF neutral. It expects Vodafone Idea’s FCF to remain negative for the foreseeable future, irrespective of the level of the company’s AGR dues.
Further, Goldman Sachs expects Vodafone Idea’s net debt-to- earnings before interest, taxes, depreciation, and amortisation (EBITDA) to stay north of 5x at least until FY25E in either case.
While incrementally positive for Bharti Airtel and Vodafone Idea from a cash flow and net debt standpoint, Goldman Sachs believes that AGR dues at the lower self-assessed levels would have little to no impact on the industry’s competitive landscape.
According to Goldman Sachs, it does not foresee Vodafone Idea increasing its investments in network; the company is currently generating about Rs 70 billion of annual EBITDA, and its minimum annual regulatory payments (spectrum + self-assessed AGR dues) starting FY23 would be Rs 162 billion. Thus, Vodafone Idea’s capex, according to Goldman Sachs, will continue to lag peers, and its market share erosion will continue.
For Airtel, Goldman Sachs said that it expects FCF to see a sharp improvement starting FY22. It forecasts the telco to generate at least US$2 billion in FCF in its India business, a part of which could potentially be deployed for a faster 5G roll-out. In addition, if ARPUs were to be higher, to levels where Vodafone Idea became FCF neutral in FY23, Airtel’s stock could potentially offer 44-73 percent upside from current levels depending on assessment level of AGR dues.
