Global brokerage Citi maintained its ‘buy’ recommendation on Vodafone Idea stock after the Chief Justice of India consented to hear its appeal over AGR (Adjusted Gross Revenue) dues. Citi has set a target price of ₹23, suggesting a strong upside of almost 38%.
“The management is hopeful about a positive resolution in the AGR case and expects the government will stay supportive. Citi estimated that a successful curative petition might result in a reduction in dues of ₹30,000-35,000 crore.
On Monday, July 15, Vodafone Idea asked the Supreme Court to accelerate the hearing of its curative case challenging a prior court order on its AGR dues. Chief Justice D.Y. Chandrachud informed the telecom corporation that the decision to list the case will be made soon.
Citi’s bullish prognosis and recent developments in the case led to a 5.8% increase in intra-day trading on July 16 to ₹17.66. It is now just over 8% away from its 52-week high of ₹19.15, which was reached in the previous month-end. The stock has risen 140 percent from its 52-week low of ₹7.35 in July last year.
In the last year, the telecom stock has seen multi-bagger returns, rising 127 percent. However, it has provided moderate profits in 2024 thus far, gaining by roughly 13%. Only two of the seven months of the current calendar year have shown positive returns for the stock. The stock has fallen 4.3 percent in July following two consecutive months of increases. It increased 17.3 percent in June and 15.5% in May. However, the stock fell in the first four months of 2024, losing 0.4 percent in April, 2.9 percent in March, 4.8 percent in February, and 10.3 percent in January.
On July 15, prominent counsel Harish Salve, representing the indebted telecom giant Vodafone Idea (Vi), petitioned a court chaired by Chief Justice of India DY Chandrachud to examine their curative petition about Adjusted Gross Revenue dues. Salve highlighted that the petition, which was originally submitted in September 2023, has gained urgency as a result of Vi’s recent restructuring, and the company’s new investors want to get the AGR issue resolved.
Salve stated that Vi’s new funders require clarification on the exact obligation for AGR dues, which presently total ₹58,254 crore payable to the government. The Chief Justice stated that he would decide on when to file the case soon.
Salve contended that the Department of Telecommunications (DoT) committed errors in calculating the final demand for AGR dues and that Vodafone Idea was denied a fair hearing before the penalty was imposed. Telecom operators are required to pay the government an annual license fee based on a percentage of their Adjusted Gross Revenue, hence the definition of AGR is critical for their profitability.
Salve also stated that Vodafone Idea had undergone a restructuring, referring to the company’s move to convert government debt to equity, making the Indian government the company’s largest stakeholder with a holding of more than 32%.
In its September petition, Vodafone Idea stated, “The company is currently facing a severe financial crisis that jeopardizes its survival. The court’s ruling, which prohibits even the correction of minor errors in the demands, prevents any reduction in the substantial amounts owed, and imposes penalties and interest, is perceived as deeply unfair.”
The petition stemmed from a Supreme Court judgment dated September 1, 2020, requiring telecom businesses to pay their AGR dues over ten years. In July 2021, the Supreme Court denied a case seeking changes in the computation of AGR dues. Telecom companies alleged there were several errors totaling over ₹1 lakh crore.
In its petition to the Supreme Court, Vodafone Idea expressed concerns about its financial problems, stating that the AGR requests surpassed the principal amount and emphasizing that it operated in good faith when challenging revenue definitions. The Supreme Court ruled in 2020 that telecom businesses must pay 10% of their dues upfront by March 31, 2021, with a delayed payment schedule that extends until 2031, with 10% of the remaining amount due by March 31 each year.
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