Vi not out of the woods yet

Vodafone Idea has renewed its fundraising efforts, and is dialogue with banks regarding fundraising to pay off upcoming dues and re-start 4G and 5G CapEx.

Vodafone Idea’s net loss for the October-December quarter rose to Rs 7,990 crore from Rs 7,595.5 crore in the preceding quarter.

Of the Rs 43,000 crore dues after the moratorium, the regular AGR (adjusted gross revenue) and spectrum-related dues would be Rs 9,100 crore and Rs 16,500 crore, respectively, whereas the deferred AGR and spectrum dues from the moratorium will be Rs 7,400 crore and Rs 10,000 crore, respectively. As part of the reform package, operators can ask the government to convert pending deferred regulatory dues into equity again, but that will only be at the discretion of the government.

“The reforms package also provides that these instalments can be converted to equity and the adjustments can be made for each and every instalment independently post the moratorium period. So, when one looks at these instalments, these are to be seen a little differently. One is the regular stream of instalments and the second is the instalments arising out of the deferment, which is governed by the reforms package and they may have somewhat dispensed implications going forward,” Vodafone Idea CEO Akshaya Moondra had said at the Q3 FY23 earnings call recently.

Brokerages comments
“Vi’s overall leverage remains a significant concern, with considerable uncertainty on the ability of the company to meet its enhanced payments to the govt after the moratorium period ends (>₹40,000 crore as per management ); we, therefore, stay on the sidelines on the stock. Completion of the crucial capital raise could, however, improve VI’s ability to clear its overdue amounts to tower cos, with Indus a key potential beneficiary.

Vi’s net subscriber loss remained elevated at 5.8 million, leading to continued negative operating and financial leverage. We believe that Vi’s continued inability to invest in the network and a delay in the 5G rollout could accelerate market share loss in the near term.
Further, cash flow and debt issues would worsen once the moratorium on regulatory payment ends. The company would need frequent (but required) equity infusions, with potential dilution to the shareholders, as per the credit rating firm.” Credit Suisse

“The government equity conversion of Rs 16,100 crore gives VIL some breathing space, but it remains a drop in the ocean of the huge Rs 2.2 trillion debt. VIL needs to improve Ebitda (tariff hikes) and simultaneously reduce debt (raise equity) to remain financially viable. It also needs to invest in the network and arrest subscriber decline. The above three conditions are necessary, but might still not be sufficient for its long-term sustainability.” Nuvama Institutional Equities

“The base case remains that Vodafone Idea will be a going concern. We assume in the long term that a part of outstanding debt on spectrum and AGR will also be equitised by the government. While headline sub losses sustain, key driver for the stock post equitisation of part government debt is debt refinancing and capital infusion in the medium term.” JPMorgan

“Vi has nearly Rs 8,000 crore external dues coming up for repayment in next 12 months and around Rs15,000 crore in overdue vendor payables.

As per management, Vi continues to engage with lenders for refinancing part of the upcoming debt repayments and with vendors/GoI for more flexibility in payment terms for service/licence fees.

With the government’s keenness to protect a 3+1 player market structure (three private and one state-owned operators) and Vi’s significantly lower external debt (Rs 13,000 crore in overall Rs2.3 lakh crore part of the loans is expected to get refinanced, which could lead to improved payment terms for Indus Towers.

Without a large and expedited fundraise, Vi’s market share losses will likely accelerate, especially among premium data subscribers, as peers roll out pan-India 5G in the next few quarters,” Kotak Institutional Equities

“VIL’s overall leverage remains a significant concern, with considerable uncertainty on the ability of the company to meet its enhanced payments to the government after the moratorium period ends”. Citi Research

“We await fundraising for CapEx and 5G rollout. The huge $28 billion debt despite equity and the moratorium adds multiple risks.” CLSA

“The company has gone past the first hurdle in an obstacle course. However, unless Vodafone Idea manages to more than double its revenue over the next three years, making these payments will be very difficult.” IIFL Securities

“Vodafone Idea’s reluctance to raise the price of entry-level plans points to a lack of confidence of the companies retaining its subscribers.” Nomura

CT Bureau