Analysts have expressed concerns over Vodafone Idea’s continuous loss of subscribers and higher debt obligation post the moratorium on regulatory dues. The brokerages expect the company’s market share erosion to continue in the absence of a meaningful fundraise and investment in 4G network expansion and 5G launch.
Looking at the present financial situation and huge debts of Rs 2.15 trillion on the company’s books, brokerages such as Goldman Sachs, JP Morgan, IIFL Securities, among others, have been maintaining a sell or an underweight rating on the company’s stock.
For Vodafone Idea, October-December was another weak quarter with key concerns being low capital expenditure of Rs 330 crore, 95% lower than peer Bharti Airtel. Additionally, the company faced challenges with a substantial subscriber churn of 5 million and a decline in sequential revenue from operations, further impacting its overall performance.
“Vodafone Idea’s EBITDA generation (at Rs 8,600 crore annualised), while enough to meet repayment obligations over 12 months, is still meaningfully lower than what we estimate as required to close the network gap to peers, and we believe the firm’s market share erosion could continue,” said brokerage house Goldman Sachs in a note. “The biggest risk is delays in 5G capex that can drive higher churn thereby accelerating subscriber losses,” said brokerage house JP Morgan.
By December, the company has an obligation to pay debt of around Rs 5,400 crore. The debt includes Rs 533 crore towards spectrum payment, Rs 3,200 crore bank debts, and repayment of optionally convertible debentures (OCDs) of Rs 1,600 crore.
Simultaneously, the company also owes about Rs 5,700 crore to one of its major vendors Indus Towers towards past dues. In FY26, once the moratorium on regulatory dues is over, the company will have an obligation to pay around Rs 28,000 crore to the government. From FY27 onwards, the company will have a debt obligation of over Rs 41,000 crore to the government.
“Vodafone Idea continues to face significant uncertainty on meeting its repayment obligations to the government after the moratorium ends. The long overdue capital raise therefore remains critical,” said Citi Research in a note.
The company did not provide any updates on the fundraise during its earnings call with analysts, but said it remains engaged with various parties. Vodafone Idea had earlier said it would conclude its external fundraise round by December 2023, but the same did not happen.
“Without significant fund raise, we do not see a case for Vodafone Idea’s revival,” said Kotak Institutional Equities. As of now, the only option which analysts believe could save the company is the government’s further conversion of its dues into equity.
The company’s revival hinges on part waiver on government dues, regular equity infusions, and sharper tariff hikes, according to Kotak Institutional Equities. “Our base case remains that Vodafone Idea will be a going concern and we assume in the long term that part of outstanding debt on spectrum and AGR will also be equitised by the government,” JP Morgan said.
Goldman Sachs said, for Vodafone Idea’s competitive positioning to improve, it will require a substantial amount of capital of about $8-10 billion (around Rs 80,000 crore), and/or a tariff increase.
Based on the company’s free cashflow position, weakening of market share, and absence of fundraise, Vodafone Idea is expected to have a gap of Rs 30,000 crore FY27 onwards, according to analysts. Vodafone Idea’s net loss for the October-December quarter narrowed to Rs 6,986 crore from Rs 8,738 crore in the preceding quarter.