Vodafone Plc's arbitration win unlikely to change its investment stance

Experts believe that the decision by the Supreme Court last year on the adjusted gross revenue matter was probably the last straw that broke the camel’s back. | Photo: Shutterstock
Vodafone Group Plc’s victory in an arbitration case it had initiated in 2014 against a tax demand of Rs 20,000 crore at the Permanent Court of Arbitration in the Hague is set to boost investor sentiment.

However, it is unlikely to change its stance on investments in its Indian joint venture Vodafone Idea, believe analysts. Vodafone Plc owns just under 45 per cent in the Indian telecom venture.

Ambareesh Baliga, an independent analyst, said the decision is positive for Vodafone Plc and could help make the fund raising process easier.

Vodafone Idea is planning to raise Rs 25,000 crore via equity and debt instruments and is targeting another Rs 10,000 crore from the sale of fibre and data centre businesses.

Baliga believes that there were two key outstanding issues for the parent of the listed entity. While the judgment on adjusted gross revenues (AGR) removed a major overhang on the sector, the other key dispute was the ongoing litigation against the Centre on retrospective change in tax law. With the resolution, both the issues are now behind it.

Pankaj Murarka of Renaissance Investment Managers believes that the decision will boost sentiment and also sends a positive message to foreign investors. He expects the telecom sector to remain a three-player market with rates expected to move up over the next couple of months.

While Street reaction was positive with Vodafone Idea stock moving up nearly 14 per cent, some analysts are sceptical about the ability of the company to match up to its larger peers. This is in view of the absence of equity investments by Vodafone Plc. Says an analyst at a foreign brokerage, “Vodafone Plc has already invested $30 billion in the Indian telecom market and has not made money from this investment. While it may use money from investments in Bharti Infratel for investments in Voda Idea, the chances of fresh funds are miniscule.”

Experts believe that the decision by the Supreme Court last year on the AGR matter was probably the last straw that broke the camel’s back. Lack of major investments to upgrade its network and aggression by Jio on postpaid tariffs could lead to further loss of subscribers for the third largest private operator.  

At the end of the April-June quarter, Vodafone Idea had a net debt of Rs 1.15 trillion and posted a pre-tax loss of Rs 25,460 crore in the quarter.

In addition to the annual capex, the company needs large infusions to take care of spectrum payments and balance AGR dues over the next two years.

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