Vodafone's 'Best Idea' Would Be A Planned Bankruptcy, Says Deepak Shenoy

Vodafone Idea Ltd.'s mounting debt obligations and its inability to generate sufficient cash flow are driving a bleak outlook for the company and it "seems headed to bankruptcy", said Capitalmind Chief Executive Officer and portfolio manager Deepak Shenoy.

Shenoy said the government's effort to prevent a duopoly from happening by trying to keep Vodafone Idea afloat might not be for the best. 

This comes after the company bit off the worst amongst peers on the Supreme Court's verdict on the adjusted-gross-revenue dues case.

It is better off for the market to have all healthy players instead of pitting an unhealthy competitor against two healthy players, he said.

"If this company were to go bankrupt, somebody would be able to buy its assets at a very low price. That low price will be enough for someone to set up the next version of this company at a much lower initial cost," the portfolio manager said.

The telecom operator has an upcoming cash flow crunch, with payments of Rs 30,000 crore due between October 2025 and March 2026, followed by annual payments of Rs 43,000 crore over the subsequent five years, according to the post. 

Shenoy suggested that a fourth player could potentially enter the market and take advantage of Vodafone Idea's financial difficulties. "It's sad, but it will be a killer deal if a fourth player emerges when this company is super weak on cash flows - it can quite easily pick off the pieces," he had said in a post on X earlier, noting that unless Vodafone Idea can engineer a "miracle" in the next few years, its survival seems unlikely. 

The company's efforts to raise Rs 18,000 crore through a follow-on public offering would be insufficient to cover these staggering liabilities, he said.  It could potentially convert some of the company's debt into equity, but Shenoy said that there is limited scope to absorb the massive payments due next year.

"We need to make our bankruptcies much faster. People drag them along, put them to court cases, take five or six years," he said.

His comments come amid heightened concerns following the Supreme Court's ruling on Thursday that rejected telecom operators' plea seeking a re-computation of their AGR.

Vodafone Idea's AGR liability stood at Rs 70,300 crore as of June, accounting for 33% of its gross debt.

This marks a significant setback for the company, which has been struggling with a prolonged financial crisis since the 2019 judgement that required the inclusion of non-core revenue in the calculation of AGR, leading to an enormous increase in liabilities.

Shares of the company were trading 5.08% lower at Rs 9.91 apiece compared to a 0.54% advance in the benchmark Nifty 50 as of 10:14 am.