Vodafone Idea's position may be tough even post relief measures: Credit Suisse report

NEW DELHI: Vodafone Idea's cash flow analysis indicates that its situation may remain challenging even after any relief measures, and the telco needs "meaningful capital infusion" with a long gestation period to become competitive, a report by Credit Suisse said on Wednesday.

The report expects Airtel to be "well placed" in either of the scenarios, of two-private-operator sector, or three private operators post an industry repair.

The note by Credit Suisse on the Indian telecom sector said there has been increasing interest among investors to evaluate valuations of Bharti Airtel and Indus Towers under two situations, in the wake of recent developments.

The developments include SC dismissing petitions of telcos on AGR, Kumar Mangalam Birla stepping down as Chairman of Vodafone Idea, as also telcos' promoters reportedly expressing potential inability to raise funds.

The situations include a two private-operator market scenario, and a scenario if VIL is taken over by BSNL or the government. "Under a two-private-operator scenario, we expect Airtel's subscriber market share to reach 40 per cent and ARPU (average revenue per user) to increase to Rs 200...," it said.

The report added: "In the event of BSNL taking over or government control, we forecast a valuation of Rs 840 per share for Airtel and Rs 190 per share for Indus. For RIL, a two-player scenario can potentially add 10 per cent to its market price, while the Scenario 2 can add five per cent."

Vodafone Idea's situation is likely to remain difficult even after relief measures, the report said. Credit Suisse added that it has also looked at the various relief measures being reportedly discussed along with the Rs 25,000-crore fundraising, and price hike to evaluate financial stress of VIL.

"Our analysis of VIL's cash flows suggests its situation will remain challenging even after the relief measures. VIL needs meaningful capital infusion (with long gestation period) to become competitive," the report added.

Airtel is well placed in either of the scenarios, that is, a two-private-operator sector, or three private operators post industry repair, it concluded. "We believe the company will also emerge as one of the key beneficiaries of the relief measures being discussed," it added.

The report analysing various scenarios assumes significance in the backdrop of Vodafone Idea's desperate struggle to stay afloat.

Billionaire Kumar Mangalam Birla recently stepped down as chairman of Vodafone Idea Ltd, within two months of offering to hand over the Aditya Birla Group's stake in the debt-laden telco to the government, in a bid to avert an existential crisis for the telecom firm.

Vodafone Idea Ltd (VIL) had an AGR liability of Rs 58,254 crore, of which it has paid Rs 7,854.3 crore and Rs 50,399.6 crore is outstanding. VIL's gross debt, excluding lease liabilities, stood at Rs 1,80,310 crore as of March 31, 2021.

The amount included deferred spectrum payment obligations of Rs 96,270 crore and a debt of Rs 23,080 crore from banks and financial institutions, apart from the AGR (adjusted gross revenue) liability.