Emkay expects a 44% downside for Vodafone Idea shares despite Rs 87,695 crore AGR waiver. This is why

The Union Cabinet’s decision to approve a relief package for Vodafone Idea (VI), which freezes a substantial portion of adjusted gross revenue (AGR) thus easing cash flow in the short term, falls short of the relief that markets had anticipated, Emkay Global said in a note.The brokerage, which has a sell rating and target price of Rs 6, implies a downside potential of over 44%. It said that the Cabinet has granted the company a five-year interest-free moratorium on AGR dues covering periods prior to FY 2018. These dues, amounting to Rs 87,695 crore, will now be repaid over a period of ten years, from FY32 to FY41. However, the AGR liabilities relating to FY18 and FY19 remain unchanged and will be payable over FY26 to FY31 as planned.

The decision exceeded expectations of a meaningful write-down of AGR liabilities. “Contrary to street expectations of a waiver of at least 50%, the government has not waived the outstanding dues linked to AGR,” Emkay noted, adding that the lack of a write-off limits the benefits of the relief package.As part of the decision, the Department of Telecommunications (DoT) will set up a committee to reassess AGR dues within six to eight months. This exercise involves a recalculation and revaluation of the AGR liabilities, including an assessment of the interest and penalty components, and a reassessment of the frozen contributions based on audit reports. Emkay pointed out that this leaves some room for a further reduction in the AGR obligation, although the outcome and timing remain uncertain.

The report also highlighted that the DoT has raised an additional AGR demand of Rs 9,450 crore coupled with reassessment and reconciliation for the period FY16-17. As per the previous payment schedule from March 2025, Vodafone Idea had to pay Rs 75,900 crore in six equal annual installments from March 2026. The revised framework displaces a significant portion of these payments, easing pressure on near-term cash flows.

Despite this relief, Emkay warned that Vodafone Idea’s financial position remains under significant pressure. While the AGR package addresses part of the problem, the company still faces deferred spectrum payment obligations of nearly Rs 1.2 lakh crore, with significant repayments planned between FY26 and FY44.

Operationally, the figures offer little comfort. VI’s pre-Ind AS 116 annualized EBITDA is just Rs 898 crore, which is 6.7% of spectrum debt. Its cash balance stood at Rs 3,080 crore at the end of Q2 FY26. Management has directed capital expenditure of Rs 7,500 to 8,000 crore in FY26, which Emkay said further exacerbates debt pressure. “Current EBITDA is insufficient to meet capex or spectrum debt repayment requirement,” the brokerage said. Even after excluding AGR contributions, leverage remains high, prompting Emkay to argue that the government will have to consider a broader plan to address spectrum liabilities. According to the report, further capital injections and spectrum debt restructuring are critical to the company’s long-term sustainability.

On the outlook, Emkay acknowledged that repeated government interventions indicate an intention to keep Vodafone Idea solvent. However, it added that deeper reforms are needed to make the company structurally stronger with manageable leverage.

Valuations also remain a concern. The stock trades at 13.6 times FY27E EV/EBITDA, which Emkay sees as expensive in light of the high debt burden and limited visibility of the government’s stance on spectrum debt.

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