While the telco may just survive for now, its journey will get even more painful.

The Supreme Court has asked telcos to pay 10% of the AGR dues upfront and has set a 10-year payment timeline for rest of the amount. While details on the upfront payment and interest rate applicable are awaited, it’s clear that Vodafone Idea will need a healthy dose of equity infusion as well as tariff hikes to continue as a going concern. And over and above this, it will need some help from the government in terms of a further deferment of spectrum liabilities, say analysts.

“The clock has started ticking for the company in terms of raising requisite equity funds it needs to survive. There are only a few months left for FY22 to commence, when large payments will be due. The company now has no cash to speak of,” says an analyst at a domestic institutional brokerage requesting anonymity.

The additional annual outgo on account of the AGR dues is estimated at around ₹7,500 crore.

“Vodafone Idea will have to service ₹7,000-24,000 crore cash outflows over FY22-23, even after we ignore non-spectrum debt maturities and assume zero capex,” analysts at Jefferies India Pvt. Ltd said in a note.

Note that the company currently has an annualised Ebitda of ₹6,100 crore, which is expected to increase to ₹10,000 crore after certain additional cost synergies fall in place. This is far short of what is needed for the dues. “Since the last tariff hike was about none months ago, it may be time for another tariff hike. In any case, there is no way Vodafone Idea will survive without meaningful tariff hikes,” says the analyst quoted above.

Jefferies’ analysts say tariffs need to rise by 27% for Vodafone Idea to offset the impact of AGR dues. “Given that after the ~30% tariff hikes in Dec-19, Vodafone Idea’s Ebitda has grown by 20%, it may need additional support from the government in the form of a further 2-year moratorium on deferred spectrum liabilities to remain solvent beyond FY23.”

While the company could potentially raise some funds through the sale of its fibre assets as well as through refunds and dues owed to it, the fact remains that it will still not have the requisite funds to make investments needed to survive in the competitive Indian telco market.

Bharti Airtel Ltd, on the other hand, is in a much better position, and its market share gains are expected to continue, thanks to Vodafone Idea’s woes. Its shares have risen over 7% since the AGR verdict.

Vodafone Idea lost a staggering 5.8 percentage points in revenue market share in the June quarter, data from Telecom Regulatory Authority of India shows.

The company’s actions will now determine whether it plans to merely survive, which will mean continued erosion in market share, or fight back with a sizeable fund infusion.