The looming threat of the telecom sector becoming a duopoly is very real as Vodafone Idea (VIL) struggles to meet its payment obligations, according to analysts.

According to the analysis done by Credit Suisse, cash generation done by VIL remains inadequate and a cash balance at ₹3,500 crore is precariously low. According to the Credit Suisse report, VIL will need a meaningful capital infusion to break out of this vicious loop of underinvestment and market share loss.

VIL has about ₹22,500 crore dues payable between December 2021 and April 2022, which include Supreme Court mandated Adjusted Gross Revenue (AGR) as well as annual spectrum payments of ₹15,900 crore that become due from April 2022 after a two-year moratorium.

Institutional brokerage and investment firm CLSA predicts that resolutions on AGR and tariff hikes are inevitable, otherwise VIL will head into a financial crisis by FY23, and the sector will be heading for a duopoly.

With only a few months before the repayments start, VIL requires interventions such as a significant capital raise, or a large tariff increase, or a 2x increase in Average Revenue Per Unit in order to remain cash neutral. According to estimates by Goldman Sachs, this is likely to be a low-probability scenario.

Sell rating

Goldman Sachs also gave a sell rating to VIL, which means that the stock will trade much lower in the coming months and years. “We believe investor focus remains on Vodafone Idea’s leverage situation and the company’s ability to raise capital in the short term. We see risk-reward for Vodafone Idea as unfavorable and remain sell-rated,” said the Goldman Sachs Report.

Overall, for this quarter, VIL saw a moderate uptick in its subscriber base in the 3G and 4G space, with a 4.2 million addition of 4G subs. Analysts, however, remain doubtful regarding the sustainability of the trend. Subscriber loss remained stable at 2 million. However, they still lagged behind their peers sharply (Bharti 14 million sub uptick and Jio 15 million sub uptick) suggesting VIL is still losing voice customers upgrading to peers, according to JP Morgan.

Enormous debt

According to CLSA, VIL’s debt burden for FY21 is enormous as well at ₹1.8 lakh crore of which ₹96,300 crore is for spectrum liabilities and ₹61,000 crore is for AGR liabilities. The operator, on Wednesday, said it remains in talks with potential investors on fundraising of ₹25,000 crore. But it stated there exists material uncertainty related to its ability to continue as a going concern even though it has met all debt obligations as of date.

VIL reported a consolidated net loss of ₹7,022.8 crore for the fourth quarter ended March 31, 2021, compared to a loss of ₹11,643.5 crore recorded during the same period a year ago. The telecom operator had recorded a net loss of ₹4,532.1 crore in the sequential third quarter ended December.

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