VIL's annualised cash flow shortfall estimated at USD 3.1 bn without policy pill, rate hike: Report

NEW DELHI: Vodafone Idea may face an annualised cash flow shortfall of at least USD 3.1 billion (over Rs 23,000 crore) in absence of any policy relief or tariff hike, the latest note by Kotak Institutional Equities estimated on Tuesday.

Vodafone Idea's Q1 FY22 results were fraught with challenges from the second wave of COVID-19, which led to a steeper-than-peers decline in subscriber base as well as ARPUs (average revenue per user), Kotak Institutional Equities said in its latest note on the troubled telco.

"We estimate annualised cash flow shortfall of at least USD 3.1 billion without any policy relief or tariff hike," it estimated.

VIL may require policy respite as well as "meaningfully" higher tariffs to be in a position to serve its subscriber base without any disruptions as a going concern, it said.

"We cut our Ebitda (earnings before interest, taxes, depreciation, and amortisation) estimates for FY2022-23 by 13 per cent factoring in a lower subscriber base, lower ARPUs and other minor changes. Our rating stays suspended for now given the ongoing uncertainty on plausible medium-term scenarios for the survival of VIL," it added.

The report further said its analysis of VIL's cash flows suggested that the current run-rate of Ebitda along with incremental cost savings as per the management guidance and estimated gains from recent tariff changes, may fall short of its annual commitments by Rs 23,300 crore (or USD 3.1 billion).

"We assume AGR instalment of Rs 9,000 crore (next due in March 2022), given no likelihood of relief on this front, spectrum-related payments of Rs 15,900 crore, interest cost of Rs 2,500 crore on the non-government borrowings and low run-rate of capital expenditure at Rs 3,800 crore, for our calculations," the note said.

At the company's Q1 earnings call on Monday, VIL Chief Financial Officer Akshaya Moondra had said the company has "lumpy" bond redemptions in December 2021 to February 2022 timeframe, for which the telco is working on two fronts.

"Firstly, we are engaged with the investors to get new funding and that discussion is in a very active stage right now. Second, we are in parallel discussions with the bond holders also to see what kind of refinancing possibilities are there," Moondra had said.

The company believes that the combination of the two would allow the company to meet the requirements of bond repayments which are falling due from December 21 to February 22.

"Generally, we are generating positive cash from our operations which enables us to meet capex (capital expenditure) requirement, interest payment and smaller principal repayments," Moondra said.

In a recent report, Jefferies dubbed the telco's quarterly performance "uninspiring", and said VIL's "fragile" state will likely ensure market share shifts towards Bharti Airtel and Reliance Jio.

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

Last week, Vodafone Idea filed a review petition in the Supreme Court, after the apex court recently dismissed its plea for rectification of the alleged errors in the calculation of adjusted gross revenue (AGR)-related dues.

The total gross debt (excluding lease liabilities and including interest accrued but not due), as of June 30, 2021, of VIL stood at Rs 1,91,590 crore.

It comprised deferred spectrum payment obligations of Rs 1,06,010 crore and AGR liability of Rs 62,180 crore that are due to the government.