What will decide if Voda Idea can take off or slip from here

NEW DELHI: Vodafone Idea, which recently denied reports of talks with US-based wireless carrier Verizon and Amazon for a stake sale, has approved a Rs 25,000 crore fundraising plan. But there was not much clarity on how it will achieve that.

The telco had in 2019 raised Rs 25,000 crore from a rights issue. But that hefty sum hid a Rs 17,920 crore contribution by promoters Vodafone and Aditya Birla Group.

This time it seems unlikely that partner Vodafone will put in more money. Analysts said all eyes would now be on whether the company manages to bring in a strategic investor or large private equity player with a deep pocket, whose name can boost the confidence of other prospective investors.

Should that happen, the company, which has now been rebranded as Vi, could be in a good position to raise money from either equity or debt markets, or both. Next couple of months are going to be crucial, analysts said.

There would be multiple steps Vi needs to follow to raise the desired funds, said Sameer Kalra of Target Investing.

“The first step would be to monetise all its non-core assets, including data centres and the stake in Indus Towers, which should yield some Rs 8,000-9,000 crore. The company would then be looking to bring in a large strategic investor, or at least a PE investor with deep pockets, who could invest thousands of crores. This would give investors a sense of stability in Vodafone Idea. The telco needs to do it fast over the next 3-6 months. Depending on how things pan out, the telco could then explore other modes of fund raising,” Kalra said.

Rajiv Sharma, Head of Institutional Equity Research, Performance Coach & Strategist, SBICap Securities, felt getting long-term strategic partners is one key aspect for the firm.

He said the Rs 25,000 crore fund raise in itself would not be adequate and can just help for a period of 12-18 months. “The equity parts will happen first, and then the debt part, because they are already leveraged. If they go with any debt instrument right now, they may have to agree on a higher coupon, which may be reasonable once they have more equity on the balance sheet,” Sharma said.

The telco needs funds to pay its adjusted gross revenue (AGR) of Rs 50,400 crore to the government within 10 years. Including AGR dues, the company is laden with a debt of Rs 1.7 lakh crore.

To be sure, UK partner Vodafone Group has clarified that it would not invest any fresh equity in Vodafone Idea . In an email statement to Economic Times, the British company said the group did not intend to put any new equity into Vodafone Idea. The group is expected to infuse around Rs 6,600 crore as per pre-agreed merger terms. It has already put in over Rs 1,800 crore under this arrangement, out of a total corpus of Rs 8,400 crore.

For now, the company is expected to get about Rs 4,000 crore for its 11 per cent stake in Indus Towers. It can also look forward to income-tax refunds of around Rs 1,600 crore from VIL's stake sale in the Indus Towers-Bharti Infratel merged entity, and may seek to sell its fibre and data centre, which can generate $1.5-2.1 billion.

Analysts said recent tariff hikes could not add materially to the company’s Ebitda. They said the expected cash flows, given the diluting subscriber base, would not be sufficient to keep the telco going. Besides, the company would also need to incur capital expenditure to stay competitive.

Geojit Financial Services said while the SC verdict allowing more time to clear the AGR dues offers a lifeline to the company, it is apprehensive of the company’s ability to stick to payment deadlines without improving Arpu levels or getting further equity infusion from promoters.

“Further cost optimisation, coupled with higher Arpus backed by higher prices and a probable equity infusion is required to support the company’s survival in the coming months," the brokerage said.

But can Vodafone Idea hike tariffs, given that peers are seeing a jump in subscribers at its cost, and thus could restrain themselves from hiking rates?

Kalra of Target Investing said the company has no option but to hike tariffs, even if it means loss of more subscribers.

“Once Vodafone gets well-funded, the competition may not find any reason to hold back and tariff would go up more gradually,” Sharma said.