In July this year, the Supreme Court ruling out recomputation of adjusted gross revenue of telecom companies dealt a big blow to Vodafone Idea. With AGR dues of over Rs 61,000 crore and a total debt of Rs 1.9 lakh crore, the promoters of VIL, have already made it clear that unless there is government support, the company would be driven to a point of collapse. Worried that the market would end up being a duopoly, the government too seems to have swung into action and has reportedly been discussing ways in which the telecom sector as a whole can be offered some relief.
Now, even the banks seem to have stepped in and urged the government to allow VIL more time to pay its dues. Reportedly, officials from the State Bank of India, the country’s largest lender, and the Indian Banks Association held meetings with telecom and finance department officials earlier this month in this regard. The banks have proposed that the government offer some relief by restructuring some of VIL’s dues.
Neither the government nor the IBA has officially commented on the meeting. Banks, which have been busy reducing their non-performing assets, clearly wouldn’t want to see another account turn insolvent.
In the quarter-ended June, VIL reported a net loss of Rs 7,319 crore, while revenue from operations stood at Rs 9,152 crore.
As of June 30, 2021, VIL had a gross debt of Rs Rs 1.91 lakh crore. This included deferred spectrum payment obligations of Rs 1.06 lakh crore and AGR liability of Rs 62,180 crore, according to the company’s stock exchange filings. Its debt from banks and financial institutions stood at Rs 23,400 crore. In contrast, the cash and cash equivalents stood at just Rs 920 crore.
VIL has been in talks with potential investors for some time now. However, given the uncertainties around the various payments, particularly the AGR dues, no investor has yet come forward to strike a deal. The company has also been losing subscribers, which is affecting the topline. Reliance Jio’s planned launch of its budget smartphone in partnership with Google could hurt VIL further.
Analysts say unless VIL can raise funds, the going will be tough, given the various upcoming repayments.
VIL has near-term repayment of Rs 6,400 crore over December 2021-March 2022 and additional deferred spectrum/AGR liability payment of Rs 15,700 crore/Rs 6,600 crore due in March 2022/April 2022, according to analysts at Motilal Oswal Financial Services.
“With series of upcoming debt repayment over the next 6–9 months, exhausting cash balances and no timelines for the announced fundraise, it could prove to be challenging to manage operations,” the analysts said.
All eyes are therefore now on the government and what kind of relief that it offers. A TV news report quoting sources said that most of the relief is likely to be prospective. The government may allow a moratorium on the spectrum dues for a certain period. Bank guarantee liability could also be eased. The definition of AGR could also be revised to consider only telecom-related revenues are accounted for in future, said the TV report.
These measures, if announced, could benefit the telecom companies in the long-term. But, they may still have to pay up existing dues. VIL will get some breathing space, but analysts say a significant increase in average revenue per user (ARPU) in the industry is key.
VIL is among the weakest here, it has an ARPU of Rs 104, compared with Bharti Airtel’s ARPU of Rs 146 and Jio’s Rs 138.
The structural issue undermining the sector can only be solved with a sizeable tariff hike for 4G prepaid customers, broking firm Edelweiss said in a recent note.
VIL shares have rallied as investors have hoped the government relief is around the corner. On Tuesday, the stock closed up more than 9 per cent at Rs 8.69. The cabinet meeting last week didn’t take any decision on the telecom relief package. VIL, the investors and banks will be hoping it does so in the next meeting as time could well be running out for the company.