Vodafone Idea Needs to Raise Capital, Fast

Brokerage firm Credit Suisse said, "while the government’s relief package providing four-year moratorium eases immediate cash flow constraints for VIL, it needs about US$1 billion, at the very least, over the next 6-9 months to repay its non-spectrum debt and ride through these four years with minimal Capex".

To its credit, for the last 13 months, Vodafone Idea has been trying its best to raise as much as $3 billion via PE investors or even bringing in another promoter. What's more, the telco's promoters have been exploring the option to infuse some equity in the telco. At the extreme end of it, Kumar Mangalam Birla, former Executive Chairman at the telco, will invest as much as $150 million from his personal assets.

After the telco posted the Q2 results, Citi said, "the onus now shifts to the company to successfully complete its capital raise, accelerate network investments, stem sub losses, and (eventually) raise ARPUs, all of which come with their fair share of challenges & uncertainties…".

Reflecting on the slipping slope the telco is standing on, Nomura said that Vi has lost 17% market share since 2018. Its analysts added, "without significant fundraising, we think VI’s network investments and 5G rollout would remain constrained, at least in the near term, leading to further market share erosion".

Current Financial Status: Improving, But Slowly

The telco reported Rs. 94,069 crore in gross revenue over the quarter, registering a growth of 2.8% QoQ. Along with this, the telco managed to also improve its EBITDA to Rs. 38,629 crore for the quarter, going up by 4.2% QoQ. Most importantly, Vi also managed to raise its ARPU to Rs. 109, from Rs. 104 in the previous quarter.

According to the telco, “this quarter we had taken certain pricing initiatives to improve ARPU, in line with our stated strategy. We increased the entry-level prepaid pricing plan from Rs. 49 to Rs. 79, in a phased manner, as well as increased the tariffs in some postpaid plans”.

The telco also managed to have a cash holding of Rs. 2,500 crore during the quarter, almost triple the last quarter’s Rs. 920 crore. Vi also managed to invest more Capex; spending Rs. 1,300 crore in Q2, as compared to Rs. 940 crore in Q1. However, the telco’s debt still stands at Rs. 1.945 trillion, hanging precariously as it owes over half of it to the government. Incidentally, the telco managed to reduce its losses to Rs. 7,144.6 crore from Rs. 7,312.9 the last quarter.

Vodafone Idea has also accepted the 4-year moratorium for statutory dues, which would help it save almost Rs. 1 trillion in cash flow savings. Though, after the moratorium ends, the telco’s annual payments will almost double to ₹43,000 crores, from ₹24,800 crores. Also, the telco’s statutory dues will grow from ₹1.6 trillion right now, to ₹2.2 trillion.

As such, the telco might go for the option of converting the debt to equity, which will see the government acquire a stake in the company; the Finance Ministry will soon notify of the guidelines for the same.