Vodafone Idea shares surge 6% as Citi maintains ’buy’ call on expectations of favorable AGR case outcome

Global brokerage Citi has maintained its ‘buy’ rating on Vodafone Idea stock after the Chief Justice of India agreed to consider its plea regarding AGR (Adjusted Gross Revenue) dues. Citi has set a target price of ₹23, suggesting a significant upside of around 38 percent.

"The management is optimistic about a favorable outcome in the AGR case and believes the government remains supportive. The potential reduction in dues, if the curative petition is successful, could be ₹30,000-35,000 crore," Citi stated.

On Monday, July 15, Vodafone Idea urged the Supreme Court to expedite the hearing of its curative petition challenging a previous court ruling on its AGR dues. Chief Justice D.Y. Chandrachud reassured the telecom company that a decision regarding the listing of the case would be taken soon.

Following the latest development in the case as well as the bullish outlook by Citi, the stock has soared as much as 5.8 percent in intra-day deals today, July 16, to ₹17.66. It is now just around 8 percent away from its 52-week high of ₹19.15, hit in the previous month-end. Meanwhile, it has zoomed 140 percent from its 52-week low of ₹7.35, hit in July last year.

In the last one year, the telecom stock has given multibagger returns, surging 127 percent. However, it has given moderate returns in 2024 so far, rising around 13 percent. In the current calendar year, the stock has given positive returns in just 2 of the 7 months till date. The scrip has shed 4.3 percent in July so far after 2 straight months of gains. It rose 17.3 percent in June and 15.5 percent in May. However, the stock was in the red for the first 4 months of 2024, down 0.4 percent in April, 2.9 percent in March, 4.8 percent in February and 10.3 percent in January.

On July 15, senior advocate Harish Salve, representing the debt-ridden telecom company Vodafone Idea (Vi), urged a bench led by Chief Justice of India DY Chandrachud to consider their curative plea regarding Adjusted Gross Revenue dues. Salve emphasised that the plea, initially filed in September 2023, has gained urgency due to recent restructuring within Vi, and the company's new investors are seeking closure on the AGR issue.

Salve highlighted that Vi's new backers need clarity on the exact liability for AGR dues, which currently stand at ₹58,254 crore owed to the government. The Chief Justice indicated that he would decide soon on when to list the case.

Salve argued that the Department of Telecommunications (DoT) made errors in computing the final demand for AGR dues and that Vodafone Idea was not given a fair hearing before the penalty was imposed. Telecom operators are mandated to pay a percentage of their Adjusted Gross Revenue as an annual license fee to the government, making the definition of AGR crucial for their profitability.

Salve also said Vodafone Idea had undergone a restructuring, referring to its decision to convert government dues to equity, making the Indian government the largest shareholder in the company with over a 32 percent stake.

In the plea filed in September, Vodafone Idea stated, "The company is already on the verge of a financial crisis, which threatens its very existence, and the judgment passed by this Hon’ble Court, prohibiting even the correction of clerical and arithmetical errors in the demands, foreclosing any reduction of the amount payable by thousands of crores of rupees and further imposing a penalty and interest on penalty, is highly unjust."

The petition originated from a Supreme Court order dated September 1, 2020, which required telecom companies to pay their AGR dues over a 10-year period. In July 2021, the Supreme Court dismissed a plea seeking corrections in the computation of AGR dues, which telecom companies claimed contained multiple errors, totaling over ₹1 lakh crore.

Vodafone Idea, in its plea to the Supreme Court, raised concerns about its financial crisis, noting that the AGR demands exceeded the principal amount and emphasising that it acted in good faith when disputing revenue definitions. The 2020 ruling by the apex court instructed telecom companies to pay 10 percent of their dues upfront by March 31, 2021, with a deferred payment schedule extending until 2031, requiring 10 percent of the remaining amount to be paid by March 31 each year.

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