Budget 2025: Potential AGR Relief For Vodafone Idea, Bharti Airtel Could Boost Stock, Says Citi

Amid reports suggesting that the government might waive a substantial portion of AGR dues for Vodafone Idea Ltd. and Bharti Airtel Ltd., Citi expects this move to boost the stock prospects of both telecom companies. The brokerage further states that this relief may be a question of "when, not if".

Such a move, which could be announced in the Union Budget on Feb. 1, 2025, could be a significant game-changer, especially for Vodafone Idea, which has struggled with its AGR liabilities.

The government is reportedly considering waiving 50% of the interest and 100% of the penalties associated with AGR dues, while the principal amount remains intact.

For Vodafone Idea, this could mean a potential relief of Rs 52,000 crore, reducing about 75% of its outstanding AGR liability and roughly 25% of its total debt. This could result in a potential upside of Rs 7 per share for Vodafone Idea's equity.

For Bharti Airtel, the relief is estimated to be around Rs 38,000 crore, translating into an estimated 4% potential upside for its equity.

This proposed relief would offer significant cashflow relief to Vodafone Idea, which has faced persistent financial pressures, particularly following the Supreme Court's rejection of its curative petition in September 2024. It could also help the company raise the required funds to manage its debt, especially with the looming need to repay government dues from spectrum and AGR payments.

Citi’s target price for Bharti Airtel is Rs 1,900 per share. Key risks to this target include increased competitive intensity in India, delays in tariff hikes, higher-than-expected capital expenditure on 5G or spectrum auctions, a larger-than-expected decline in the homes and DTH segments due to competitive pressures, and underperformance in Africa.

The potential AGR relief is expected to be a material positive, not just for Vodafone Idea, but for Indus Towers Ltd. as well, given its dependence on the financial health of telecom operators. Citi has placed Indus Towers on an 'Upside Catalyst Watch', with optimistic outlooks, should the AGR issue be resolved favourably.

Citi’s target price for Indus Towers is Rs 485, which is higher than its long-term trading average of approximately 7.5 times, reflecting reduced uncertainties around Vodafone Idea, following its equity raise and a more positive outlook for the Indian telecom sector.

Citi’s target price for Vodafone Idea is Rs 13 per share, which is discounted to account for the company’s high leverage. This target multiple is lower than that applied to other Indian telecom peers, reflecting Vodafone Idea's financial challenges, although the forecast assumes operational recovery post-fund raise.

The company is rated as 'high risk' due to its over-leveraged balance sheet, with continued government support critical, especially with rising government debt repayments due from October 2025, when the current moratorium ends.