Vodafone Idea has a bigger problem to deal with beyond AGR, IIFL's Balaji Subramanian explains

Vodafone Idea Ltd., the debt laden telecom operator, may have received some relief from the Government with regards to its pending Adjusted Gross Revenue (AGR) dues, but it still has a bigger issue to deal with, according to IIFL's Balaji Subramanian.

In an interaction with CNBC-TV18 on Friday, January 9, Subramanian said that the AGR liabilities were only around 40% of Vodafone Idea's total pending dues to the government. The remaining, pertains to their spectrum debt.

"That, you know, is a big issue, because while the payuments are not meaningful, they have to pay a sizeable amount over the next five to six years," Subramanian said.

He mentioned that Vodafone Idea is supposed to pay around ₹6,000 crore next year in spectrum liabilities, followed by ₹15,000 crore in financial year 2028 and from financial year 2029 onwards, they have to pay around ₹25,000 crore to ₹26,000 crore per year.

"That is also something that needs to be taken care of," the IIFL analyst said.

One way that might happen if some fresh investor comes in, an equity investor, and the government's stake gets diluted if the investor comes in, and subsequently, the government converts more spectrum debt into equity, according to Subramanian.

He went on to add that even though the cash flow will significantly improve, only based on that if the fund raising goes through debt, equity and other aspects, then there would be meaningful equity value creation.

"But of course, the catch here is that there will be meaningful dilution. And you know, it depends on at what price the fresh equity issue happens," Subramanian added.

Shares of Vodafone Idea, which had gained as much as 8% after sharing its timeline for the repayment of AGR dues, have given up all of those gains, currently trading below the flat line at ₹11.5.