Vodafone Idea still not out of woods despite fresh equity infusion: analysts

Our Bureau | | Updated on: Mar 04, 2022

After remitting funds to Indus, Vi is likely be left with only ₹2,550 cr to plug the gap to peers on network coverage

The decision by Vodafone Idea’s promoters to infuse additional equity into the cash-strapped telecom company maybe good for boosting sentiments, but will not be enough to revive the company, according to analysts. 

Both Aditya Birla group and Vodafone Plc have agreed to infuse ₹4,500 crore into Vodafone Idea (Vi). However, nearly 43 per cent of the infusion needs to be remitted to Indus Towers to clear Vi’s dues, leaving minimally to plug the gap to peers on network coverage.

“After remitting funds to Indus, Vi will likely be left with only ₹2,550 crore  on our estimates. Vi has nearly ₹54-5700 crore in external debt repayments in FY23-24F. Despite the full impact of tariff hike and promoter infusion, and based on our assumptions, we don’t think any meaningful increase in Vi’s capex would be possible in FY23, in absence of external fund raise and/or debt recast,” Nomura said in a report. 

Vodafone Plc recently sold 2.4 per cent stake in Indus to raise net ₹1,420 crore and entered into an agreement with Bharti Airtel to sell another 4.7 per cent stake. Vodafone Plc could potentially raise combined ₹4,000 crore from the 7.1 per cent stake sale (assuming deal with Bharti at ₹200/share).

“The proceeds from the Indus stake sales would be used by Vodafone Plc towards Vi’s fund-raising with Vodafone Plc having the option to contribute the residual amount ( ₹6,000 crore on our estimates) to Vi, until 15 July 2022. Any residual amount from the sale of Vodafone Plc’s primary Indus shares that are not contributed to Vi would be available to Indus, until November 19, 2022 to guarantee Vi’s obligations under the Master Services Agreements (MSA). On our estimates, out of the nearly ₹4000 crore potential infusion from Vodafone Plc, Vi could potentially retain only ₹1,420 crore, after repayment to Indus,” Nomura added. 

Further, Vodafone Plc is in discussions with many interested parties for potential sale of its residual shareholding in Indus. However, Vodafone Plc had pledged this stake to fund its contribution to Vi’s March 2020 rights issue. 

“While the completion of the capital raise is a positive for VI, the focus will now shift to execution, especially on accelerating network investments and stemming market share losses; we await updates on the company’s strategy and investment plans going forward. There is also still considerable uncertainty on the ability of the company to meet its enhanced payments to the gov’t after the 4-year moratorium period ends, which would require far more meaningful tariff hikes and potentially further gov’t relief,” Citi Research said in a report. 

Hemang Khanna at Kotak Institutional Equities Research said that a long and arduous path still remains to be traversed, if Vi has to truly make it out of the woods.” The announced fund raise still remains miniscule in comparison to Vodafone Idea’s debt. Vi still needs to continue to raise significant capital to repay existing dues as its total net debt as of 9MFY22 stood at Rs 1.97 lak crore. It is yet to be seen if any external strategic investors decide to participate in VIL’s upcoming Rs 10,000 crore capital raise given the underlying challenges that the company faces,” Khanna said. 

Published on March 04, 2022
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