Government’s decision for Vi’s conversion into equity imperative, else telco will sink

DoT is taking too long to convert Rs 16,130-crore accrued interest on deferred AGR-related dues into equity government conversion.

The lack of funds at Vi is not a secret. The telco has been trying to raise funds from multiple avenues for a while now. However, it has failed to raise any substantial amount for a multitude of reasons.

Nothing is going well for Vodafone Idea. The telco is bleeding money faster than ever. In the second quarter of fiscal 2023, the losses have widened to Rs 7596 crore. With its inability to raise money, it is now lagging its peers in CapEx heavy 5G rollout.

Analysts tracking the stock are unanimous, ‘sell’ or ‘reduce’ is their verdict. The Q2 annualised EBITDA of Rs 16,400 crore in no way will be sufficient to meet debt repayments, which includes intensive CapEx needs and the ability to compete fiercely to retain market share. Vi’s net debt stands at Rs 2.2 lakh crore.

Vi is slowly but gradually losing its subscribers to the two telcos, thereby losing revenue. The trend has continued for another quarter.

Vi generates 98 percent of revenue from 14 circles and unlike its competitors that are focusing on a pan India coverage will continue to invest in these high revenue generating regions. There are a total of 22 telecom circles in India. In line with its strategy, it is also closing its 3G sites and adding 4G sites. It has closed 19,000 3G sites and added 8,500 4G sites.

Akshaya Moondra, CEO, VIL in the Earnings call Q2 FY23, had admitted, “Our challenge is not quality of network, but on coverage. Where we do not have a 4G network currently is definitely impacting us. And yes, that’s part of the risk that we run to expand the 4G coverage that is dependent on the funding. And to that extent, churn is getting impacted.” Whether this strategy to focus on selective regions will work or not, only time will tell.

The saving grace is:
Securities and Exchange Board of India (Sebi) last month approved a proposal to convert dues of over USD 1.92 billion by Vodafone Idea to equity. This will likely make the government the largest shareholder in the company with over 30 percent stake in it.

Vi’s board of directors have approved a plan to sell Rs 1600 crore billion ($194 million) worth of convertible bonds to ATC Telecom Infrastructure. Funds so raised shall be used to pay amounts owed to ATC (Rs 2000 crore is the amount owed) under the master lease agreements.

Vi has reported a fifth consecutive quarter for growth in average revenue per user (ARPU) per user and overall revenue, albeit it is much lower than Jio and Airtel. The telco saw an increase in data traffic by 5 percent on-quarter (QoQ). Data usage per subscriber increased 6 percent QoQ to 14 GB against around 21 GB for Airtel and Reliance Jio.

CT Bureau