Vodafone Idea In An Extremely Precarious Condition: Citi

Vodafone Idea's situation remains extremely precarious, given its net debt/EBITDA of 20 times, analyst firm Citi said in a report. The company has admitted that its ability to continue as a going concern remains at risk in the absence of relief on its over $6 billion AGR liability. While some green shoots were visible in 3Q (+2 per cent q-o-q revenue growth, 4G sub adds accelerated, tariff hike benefits to be visible from 4Q), this could come to naught without any relief.

The company has, for now, announced that it intends to make a part-payment towards its dues shortly (quantum still being assessed), the report said.

The de-leveraging depends on relief on the company's AGR liability, either in terms of quantum or in payment terms, further relief measures from the government which could reduce levies and improve the balance sheet and cash flows, and better-than-expected execution on synergy extraction and better-than-expected pace of 4G subscriber additions.

The risks Vodafone Idea faces are that it may have to bear the entire AGR liability, depressed India mobile revenues resulting from worsening competitive intensity, increase in subscriber churn and lower-than-expected pace of 4G subscriber additions.

"We struggle to see what the next recourse could be for Vodafone Idea, with most legal options appearing to be exhausted. While it may still be possible for the government to offer relief, perhaps through legislative/policy action if it so chooses, we are yet to see any such indication or willingness from the government. Given the heightened uncertainty, the potential market share gains on further industry consolidation could drive upsides for Bharti Airtel and Reliance Industries while further tenancy exits could create downside risks for Infratel (Neutral). We keep our estimates unchanged for the moment as the situation remains extremely fluid and uncertain," Citi said.

The report said that Bharti Airtel has begun clearing its dues following the strong and unforgiving stance adopted by the Supreme Court. Bharti Airtel has made a partial payment of $1.4 billion of its $5 billion dues and will pay the remaining amount well before the next date of hearing on March 17 post self-assessment. Following $3 billion capital raise in January and $2+ billion of cash on books as of December, this should not be a stretch for the company.