Shares of Vodafone Idea jumped over 24% intraday to Rs 8.57 on Monday, before closing at Rs 8.26 on the BSE, buoyed by the government’s go-ahead to convert the telco’s regulatory dues into equity. On the NSE, they closed 20.44% higher at Rs 8.25.
While the government’s decision has lowered the company’s risk of getting dragged to the National Company Law Tribunal, analysts have ruled out any major take-off in its performance owing to weak fundamentals and operating metrics.
On Friday, the government directed the company to issue 161.3 million equity shares of Rs 10 face value each at an issue price of Rs 10 each, which would make the government the single-largest shareholder in Vodafone Idea with a 33% share.
Given that it has debts coming up for maturity and continues to lose subscribers, Vodafone Idea’s fate still depends on the quantum of money it would be able to raise from external sources, and how soon it can raise the funding, analysts said.
Further, the interest dues converted are just 7% of the company’s total Rs 2.2 trillion outstanding debt, and would not offer any immediate savings on free cashflows. “Given the still elevated debt profile, continued market share erosion, and meaningful network gap vs peers, we see a low probability of Vodafone Idea raising a meaningful amount of external capital,” said Goldman Sachs.
According to the company, Rs 9,600 crore of debt is payable by September 2023, while its gross cash balance as of September 2022 is Rs 200 crore. Analysts have estimated that the company will have a cash shortfall of Rs 6,400 crore by September 2023, assuming that all debt is repayable.
“We believe VIdea (Vodafone Idea) will still be in crisis to fund annual spectrum payments beyond the four-year moratorium (ends in FY25) unless its Arpu reaches Rs 300,” CLSA said.
The company has lost subscribers for 20 straight months till November, according to data from the Telecom Regulatory Authority of India. It lost 40 million subscribers during the period, with the total figure at 243.79 million as of November-end.
To sustain operations and generate meaningful cashflows, the telco will have to raise tariffs to take its Arpu (average revenue per user) to `356. As of September-end, its Arpu was Rs 131. However, most analysts rule out tariff hikes in the current year owing to inflationary pressures and fear of losing consumers.
“Our checks and discussions with vendors/ towercos (tower companies) indicate that VIL is significantly under invested in fibre, 5G and core telcos infra. It would at least take $6-8 billion (Rs 50,000 crore – Rs 65,000 crore) investment to narrow the gap. With limited visibility on any massive cash injections, we expect VIL to lose market share to Bharti & Jio — especially as its peers start improving 5G network,” said BofA Securities in a note.
The brokerage has maintained its ‘underperform’ rating on the shares of the company.
The company had said it needed to raise Rs 25,000 crore, of which promoters have already put in Rs 4,900 crore. The telco hopes that the conversion of debt into equity would help in raising Rs 20,000 crore.
According to the government, promoter Aditya Birla Group has also committed to infusing fresh capital into Vodafone Idea. The extent of its external fundraise would also depend on the amount that will be brought in by the promoter. “Whether this involves direct equity infusion by the AB Group and/or external investors remains to be seen. The latest development could therefore potentially kickstart a virtuous cycle of events for VI (Vodafone Idea) as far as its precarious B/S (balance sheet) is concerned, which, in turn, could see it enhancing 4G investments and announcing 5G rollout plans,” said Citi Research in a report.
At the end of the July-September quarter, Vodafone Idea’s gross debt (excluding lease liabilities and including interest accrued but not due) was Rs 2.20 trillion, comprising deferred spectrum payment obligations of Rs 1.36 trillion, AGR liabilities of Rs 68,590 crore that are due to the government, and debt from banks and financial institutions of Rs 15,080 crore.
Vodafone Idea’s net loss stood at Rs 7,595.5 crore during the July-September quarter.