Vodafone Idea on road to recovery, but lot needs to fall in place still: Analysts

VI is certainly in a better position today than it was pre-FPO


Are ailing telecom operator Vodafone Idea's fortunes about to turn? With the company now equipped with over Rs 20,000 crore equity fund raising it recently completed, analysts expecting a round of tariff hikes in the near future, and pace of subscriber loss moderating, the road ahead for the company certainly feels brighter than it was not so long ago.

However, analysts still see Vodafone Idea as a work in progress. The biggest concern is around the dues that will come up for repayment after the four-year moratorium period. Analysts feel the company will face a fund shortage and say the government will have to intervene again, through measures such as extension of the moratorium or converting more dues into equity.

Vi raised Rs 18,000 crore via a follow-on share sale in April. It additionally raised Rs 2,075 crore via preferential allotment to a promoter Aditya Birla Group entity. It is also looking to raise additional debt to the tune of Rs 25,000 crore.

Furthermore, there is an expectation that telecom companies will raise tariffs after the the Lok Sabha elections. Hemang Khanna, analyst at Nomura expects the industry to hike tariffs by 15 per cent.

The fund raising and tariff hikes should improve Vi's fortunes in the medium term, said Kotak Institutional Equities analyst Aditya Bansal. However, he still expects Vi to face a large cash shortfall of Rs 10,000 crore over financial year 2025-2027 and higher Rs 74,000 crore over financial year 2028-2032.

"Vi’s long-term revival remains contingent on further relief measures from the government of India. With the GoI’s intention of maintaining a 3+1 market construct in the Indian telecom sector, we believe there could be further reform measures such as extension of moratorium, part waiver of AGR dues and/or equity conversion of Vi’s deferred dues," said Bansal.

Vi in its curative petition filed in the Supreme Court has contended that there have been errors in calculating the liability by the department of telecom.

"As per company self-assessment, base AGR dues have error of Rs 6,000 crore (out of Rs 14,000 crore), and reduction of interest, penalty and interest on penalty to take down AGR dues by Rs 24,000 crore. A 36 per cent reduction in interest cost till March 2024 will take the total amount to Rs 33,000 crore" noted ICICI Securities analyst Sanjesh Jain.

Some analysts say, should Vi get a favourable ruling, its AGR dues could fall sharply.

Dues are just one issue Vi still faces, though. Vi has continued to lose subscribers every quarter as rivals Reliance Jio and Bharti Airtel continue to ramp up their 5G coverage. Vi is yet to launch 5G and with the recent fund raise, the company has said it will begin 5G rollout in six months. But its key focus will still be to strengthen its 4G coverage and fill the gaps in its coverage.

In the January-March quarter, Vi lost 2.6 million subscribers. But that is much lower than the 4.6 million subscribers that it had lost in October-December, a sign that the decline may be moderating. Also, worth noting is that the company has been able to grow its 4G subscribers by 0.7 million to 126.3 million.

The equity fund raising it has already done, plus planned debt funding of Rs 25,000 crore should help the company invest Rs 50,000-55,000 crore in network for the next three years, said Jain of ICICI Securities.

"It believes it can start growing again with fair share of subscriber addition as it plugs 4G coverage, and starts adding more data capacity through 4G and 5G expansion," he said.

VI is certainly in a better position today than it was pre-FPO, now treading a clear path to survival, but a lot needs to fall into place, said Vibhor Singhal of Nuvama Institutional Equities.

"We have long maintained that Vi needs three events to play out to survive – capital infusion, liabilities waiver and tariff hikes. With the capital raise, it has achieved one and enabled another. We believe Vi is on its way to a ‘going-concern’ now – though still not completely out of the woods," he said.

Nomura's Khanna, meanwhile, believes that while a long journey remains to be traversed, "The tempest has largely passed and Vi is gearing up to meet clear skies ahead."

"Vi being able to complete its fund raise has materially improved the outlook and will enable Vi to catch up with peers on network experience; commence 5G rollout; and compete effectively in the industry and curb its subscriber losses," Khanna said, upgrading the stock to 'neutral' from 'reduce.'

Vi shares were up around 2 per cent to Rs 13.57 on the BSE on Tuesday, while the broader BSE Sensex traded flat.

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