Govt AGR relief, fresh funding fuel 61% rally in Vodafone Idea stock since April

Synopsis

Vodafone Idea shares are soaring, hitting a 52-week high. Government relief on dues and promoter funding are boosting the stock. Operational improvements show narrowing losses and rising average revenue per user. The company is working to rebuild its subscriber base and navigate a competitive market. This positive momentum offers hope for future growth and stability.

ET Intelligence Group: The stock of Vodafone Idea (VIL) has gained 61% since the beginning of April, hitting a 52-week high on Thursday. It has been scaling peaks, buoyed by the government's relief on dues pertaining to adjusted gross revenue (AGR), fresh promoter funding and potential debt funding by banks. Operational performance has also shown early signs of stabilisation, with narrowing losses, higher average revenue per user (ARPU), and reduced subscriber churn, supported by a credit rating upgrade to 'positive' from 'stable' by ICRA. Despite these positives, long-term performance hinges on VIL's ability to rebuild its subscriber base, sustain ARPU growth, secure further funding, and navigate competitive intensity in the telecom sector.

The fund infusion of ₹4,730 crore by Aditya Birla group, one of the promoters, taking its stake to around 13% from 9.6%, has strengthened funding visibility by reviving hopes of a further funding by banks and finance companies. This follows the government's revision of AGR liabilities to ₹64,046 crore from ₹87,695 crore and a favourable repayment structure, including a five-year moratorium, which will ease near-term cash flow pressures.

Agencies

A similar fund-raise in 2024 had failed to unlock bank financing due to uncertainty over AGR dues, but the latest clarity could change lender stance. In May 2024, the Birla group infused ₹2,075 crore while ₹18,000 crore were raised through a follow-on offer (FPO) to augment 4G presence and to deploy 5G services.

Apart from funding, the second crucial factor is the turnaround in VIL's operating parameters. Its subscriber base has shrunk significantly with its share in total user base falling to 12.1% in FY26 from 14.8% in FY23. Also, the number of active users fell to 169.3 million from 207.9 million during the period. On the positive side, average revenue per user (ARPU) rose to ₹190 from ₹135 between FY23 and FY26, aided by a slew of tariff increases. In addition, even though its subscriber base shrank, the average 4G/5G data usage increased to 20.2 GB from 15.5 GB during the said period.

The other factor to watch is competitive intensity in the domestic sector, which has been rationalised over the past few years as incumbents tend to raise tariffs in tandem. Strategies used by VIL to grow the user base and data penetration will determine whether the sector reports yet another bout of high competitive intensity.

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