Vodafone Idea: Voda Idea needs minimum Rs 70,000 crore equity funding plus govt relief to survive: Analysts – The Economic Times

lipped from: https://economictimes.indiatimes.com/industry/telecom/telecom-news/voda-idea-needs-minimum-rs-70000-crore-equity-funding-plus-govt-relief-to-survive-analysts/articleshow/84138233.cmsSynopsis

“Vi will need to raise around Rs 70,000 crore in equity or increase its average revenue per user (ARPU) to around Rs 200 to get out of the woods, or some combination of the two,” brokerage Deutsche Bank said in a report.

Vodafone Idea(Vi) needs a minimum Rs 70,000 crore equity infusion along with substantial government relief on the adjusted gross revenue (AGR) payments front and an early floor pricing regulation to climb out of the deep financial hole it’s in and survive, analysts said.

“Vi will need to raise around Rs 70,000 crore in equity or increase its average revenue per user (ARPU) to around Rs 200 to get out of the woods, or some combination of the two,” brokerage Deutsche Bank said in a report.

Ultimately, a solution for Vi, it said, requires “closer to Rs 1 trillion” in a combination of new equity and cost relief.

“The government needs to show it is supportive, providing substantial relief, before investors follow, and AGR recalculation and/or floor pricing seem critical developments,” Deutsche Bank said.

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The German investment bank, though, said it “continues to think the government will do just enough to keep Vi alive, but not prosper”.

Shares of Vi, whose March quarter losses widened to nearly Rs 7,000 crore, were up 4.32% to Rs 9.18 in afternoon trade on the BSE Monday.

The telecom JV between UK’s Vodafone Plc and Aditya Birla Group had announced a Rs 25,000 crore fundraising plan last September via a mix of equity and debt, which hasn’t yet been finalised despite holding talks with various potential global investors over the past six months.

In a recent letter to DoT secretary Anshu Prakash, Vi said the poor health of the telecom sector had stymied its efforts to raise Rs 25,000 crore. It also rued that the floor pricing regulation, which it had expected would come by April 2020, didn’t materialise. A floor price could have addressed the current situation of predatory pricing and losses and improved industry health, it said. The telco also sought another year to make spectrum payments of Rs 8,292 crore, saying it’s not generating enough cash even as its AGR payments are eating into its liquidity.

JM Financialsaid “a government moratorium on spectrum EMI looks increasingly inevitable in the backdrop of Vi’s delayed fund raise”.

Ambit Capital warned that if Vi fails to raise capital or get further moratoriums, it’s unlikely to “honour its debt/government dues payouts”.

Edelweiss Research added that the telco will be able to raise tariffs only after capital infusion, and regulatory intervention is necessary to spur tariff hikes.

Vi’s management, at a recent earnings call, pushed for a floor price, saying the telco can’t go for any unilateral tariff hike. This, amid fears of more market share losses, especially in the face of Reliance Jio’s aggressive JioPhone plans and the upcoming launch of JioPhone Next – its budget 4G smartphone developed with Google.

Goldman Sachs has estimated Vi could face a Rs 23,400 crore ($3.1 billion) cash-shortfall until April 2022 as it needs to pay Rs 22,500 crore between December 2021 and April 2022 towards a mix of regular debt, AGR and spectrum dues.

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