The debt-laden telecom operator Vodafone Idea may have secured government relief on its Adjusted Gross Revenue (AGR) dues, but a more pressing financial challenge looms ahead, according to IIFL Securities analyst Balaji Subramanian. Speaking on CNBC-TV18 on Friday, January 9, the analyst highlighted that spectrum debt obligations represent a significantly larger burden than the recently addressed AGR liabilities.

Spectrum Debt Overshadows AGR Relief

Subramanian revealed that AGR liabilities account for only approximately 40% of Vodafone Idea's total pending dues to the government, with spectrum debt constituting the majority of obligations. This creates a substantial financial challenge that extends well beyond the current AGR settlement discussions.

"That is a big issue, because while the payments are not meaningful initially, they have to pay a sizeable amount over the next five to six years," Subramanian explained during the interaction.

Escalating Payment Schedule

The company faces a steep escalation in spectrum liability payments over the coming years:

This payment trajectory represents a significant financial commitment that requires strategic planning and potential restructuring solutions.

Potential Solutions Through Fresh Investment

The IIFL analyst outlined a possible pathway to address these mounting obligations through fresh equity investment. Subramanian suggested that new equity investors could facilitate government stake dilution, potentially enabling the conversion of additional spectrum debt into equity.

"One way that might happen is if some fresh investor comes in, an equity investor, and the government's stake gets diluted if the investor comes in, and subsequently, the government converts more spectrum debt into equity," he explained.

Market Response and Valuation Concerns

Despite initial optimism following the company's AGR repayment timeline announcement, market sentiment has turned cautious. Shares that had gained as much as 8% following the AGR news have surrendered all gains, trading below the flat line at ₹11.50.

Subramanian noted that while cash flow improvements are expected, meaningful equity value creation depends on successful fundraising through debt and equity mechanisms. However, he cautioned about potential dilution risks, emphasizing that the pricing of any fresh equity issue would be crucial for existing shareholders.

"Even though the cash flow will significantly improve, only based on that if the fund raising goes through debt, equity and other aspects, then there would be meaningful equity value creation. But of course, the catch here is that there will be meaningful dilution," the analyst concluded.

Vodafone Idea shares surged 9% to reach ₹12.51, compared to the previous day's closing price of ₹11.50, following significant relief on its Adjusted Gross Revenue (AGR) dues. The telecom operator, with a market capitalization of ₹1,30,000 crore, has delivered returns of over 60% in the last six months.

AGR Relief Package Details

The Department of Telecommunications has provided substantial relief to Vodafone Idea by freezing its AGR dues as of December 31, 2025, for the disputed period between FY07 and FY19. The restructured payment schedule significantly reduces immediate financial pressure on the company.

The original AGR demand of ₹87,695 crore included principal amount, interest, late payment fees, and accumulated interest on late payment charges. Under the previous structure, the company faced enormous payments beginning in FY26, which threatened its solvency and operational capacity.

Financial Impact and Restructuring

The relief package extends the payment timeline by more than a decade, allowing Vodafone Idea to maintain operational continuity while investing in the capital-intensive telecom sector. The DoT will also form a committee to reassess the AGR dues, with any revised amounts payable only during the second phase between March 2036 and March 2041.

Key benefits of the restructuring include:

• Elimination of immediate large annual payments
• Extended timeline providing operational flexibility
• Reduced regulatory overhang and tail risks
• Enhanced investor confidence and company longevity prospects

Recent Financial Performance

Vodafone Idea's operational performance showed modest improvement in Q2 FY26, with revenue growth and reduced losses compared to the previous year.

Market Implications

While the relief package does not eliminate Vodafone Idea's financial burden, it provides crucial time for the company to stabilize operations and generate cash flows. The restructured payment schedule removes the immediate threat to solvency while allowing the telecom operator to focus on customer retention and network investments in the competitive Indian telecom market.