The Rs 14,500-crore fundraising approved by the Vodafone Idea board on Thursday, of which Rs 4,500 crore would come from the promoters, would not be enough for the revival of the telecom company, according to the sector analysts.
The reason for the same is simple: Of the Rs 4,500 crore, which would be raised through the preferential allotment of shares to the promoters – Vodafone Plc and Aditya Birla Group – , nearly 43% would have to be remitted to Indus Towers to clear Vodafone Idea’s outstanding dues. Therefore, the company would be left with around Rs 2,550 crore, which would not be enough to compete with peers like Bharti Airtel and Reliance Jio as far as network coverage is concerned.
Regarding the board’s approval to raise an additional Rs 10,000 crore through the issuance of equity shares or convertible securities or other instruments, in one or more tranches, analysts said that the plans have not yet been firmed up and this may just be a renewal of board approval for a fund-raise of up to Rs 25,000 crore way back in September 2020.
“The announced fund-raise still remains miniscule in comparison to Vodafone Idea’s debt. It still needs to continue to raise significant capital to repay existing dues as its total net debt as of nine months of FY22 stood at Rs 1.97 lakh crore. It is yet to be seen if any external strategic investors decide to participate in Vodafone Idea’s upcoming Rs 10,000-crore capital raise given the underlying challenges that the company faces,” Kotak Institutional Equities wrote in its report.
“Vodafone Idea has nearly Rs 5,400-5,700 crore in external debt repayments in FY23-24. Despite the full impact of tariff hike and promoter infusion, and based on our assumptions, we don’t think any meaningful increase in Vodafone Idea’s capex would be possible in FY23, in absence of external fund raise and/or debt recast,” Nomura observed in its report.
For perspective: Vodafone Idea’s capex for nine months of the current fiscal stood at Rs 3,290 crore compared to Rs 11,980 crore for Bharti Airtel. With 5G auctions coming in the next few months, Vodafone Idea needs to secure external funding if it wants to remain relevant in the market, analysts said.
The company would also find difficult to reverse loss of subscribers as it will remain behind Reliance Jio and Bharti Airtel in terms of pan-India network capabilities and service offerings like providing subsidised devices. Both Airtel and Jio are giving lucrative offers to customers on devices, analysts added.
