One more shot: Vodafone Idea looks at fund-raising options after clarity on AGR dues

Analysts agree that the company needs to raise funds for the same along with raising tariffs.

With clarity on adjusted gross revenue (AGR) dues emerging from the Supreme Court’s order, Vodafone Idea’s (VIL) board will be meeting on September 4 to consider fund-raising plans. The company has balance dues of Rs 50,400 crore which it needs to pay over the next 10 years as per the SC’s directive.

Analysts agree that the company needs to raise funds for the same along with raising tariffs. The company’s management had also said in an investor call after the April-June quarter earnings that once there’s clarity on AGR dues payment, it would consider raising funds.

In a regulatory filing on Wednesday, Vodafone Idea said, “A meeting of board of directors of the company is scheduled to be held on September 4 to consider and evaluate any and all proposals for raising of funds in one or more tranches by way of a public issue, preferential allotment, private placement, including a qualified institutions placement or through any other permissible mode and/or combination thereof as maybe considered appropriate.”

According to analysts at Kotak Institutional Equities, “VIL remains in a tricky situation even as the court verdict offers short-term cash flow relief. The company needs a combination of quick, sharp improvement in pricing, flawless delivery on the fresh opex cut targets, competitive network spends to stem the trend of market share erosion and some equity infusion”.

Vodafone Idea would need to pay Rs 5,040 crore upfront payment by March 2021 and thereafter its yearly payment, according to estimates by Jefferies would be around Rs 6,800 crore, which would be 111% of its Ebitda. Without the promoters infusing funds, the company would need its Ebitda to triple and Arpu to rise to Rs 275 from the current `114 and cut its capex, which was anyway at its historical low of `600 crore in Q1FY21. Further, from FY23, the company would also have to start paying its deferred spectrum instalments of around Rs 16,000 crore annually. The government has provided telecom operators moratorium on payment of deferred spectrum installments for FY21 and FY22.

“Vodafone Idea will need significant equity infusion along with meaningful operational improvement to meet its cash flow needs over medium term. Our analysis shows that despite Arpu recovery to Rs 170 (+49% from June 2020 levels) and being able to stem loss of subscribers to 270 million by FY23E (vs 280 million as of June 20), cash balance for VIL would be in a precarious situation by FY22E end. Further, resumption of Rs 15,700 crore of deferred spectrum payments from FY23E would accentuate the cash flow strain for VIL,” analysts at Credit Suisse wrote.

The company would get around Rs 4,000 crore by cashing out of its 11.15% stake in Indus Towers and another `6,870 crore from Vodafone Plc, which would be the latter’s share towards merger liabilities (Vodafone and Idea had merged in August 2018).

The precarious position of the company financially can be gauged from the fact that its cash and cash equivalents stand at Rs 3,450 crore while its net debt was at Rs 1.16 lakh crore as on June 30, 2020.

The company had posted one of its biggest losses during the April-June quarter at Rs 25,467 crore, largely due to provisioning for AGR dues. Operationally, VIL has continued to lose market share ― it lost 11.3 million subscribers during the April-June quarter to 279.8 million in total, including 1 million 4G subscribers taking the number to 104.6 million and total data subscribers declined by 3.8 million to 135.7 million.