Vodafone Idea Can Get Rs 66 Bn Annual Relief if DoT Slashes Interest Rate: BNP

BNP Paribas said that reducing and waving interest off on Vodafone Idea's deferred spectrum dues and AGR dues, respectively, can give the telco $1 billion in annual relief.

Vodafone Idea's Survival Depends on Govt - BNP

BNP Paribas senior telecom analyst Kunal Vora said, “a 2% rate cut on Vi’s deferred spectrum liability would lower its annual interest burden by Rs 2,100 crore, and if the government foregoes the interest (component) on the telco’s AGR dues, it can result in an additional Rs 4,000-4,500 crore of annual relief”. Therefore, the total savings amount to Rs 6,600 crore, or roughly $1 billion.

Adding to that, BNP said that if Vi can surrender its underutilized spectrum, it would "reduce its debt burden as well as losses".  The brokerage said that Vodafone Idea will get enough headroom to reassess its spectrum allocations if the same is allowed.

The brokerage added that the telco can reduce its Rs 1.9 trillion debt, if the Center allows it to surrender its unused spectrum. According to BNP, this will reduce the net present value of the liabilities and improve cash flows.

The DoT has asked the telco Rs. 58,254 crore against AGR dues. So far, the telco has paid Rs. 7,854 crore. Also, per DoT's latest calculations, the AGR dues now stand at Rs. 62,180 crore. As such, the instalments will start from March 2022 and will set the telco back around Rs. 9,000 crore per year. Furthermore, Vodafone Idea's spectrum liability stands at about Rs. 1.06 trillion.

Saving Vodafone Idea

These takes come days after Kumar Mangalam Birla, former lead at Vodafone Idea, spoke with telecom minister Ashwini Vaishnaw. This meeting was also seen as significant given the fact that the DoT and FM are working on a telecom relief package for the sector.

Vora added that a combination of “a multi-pronged approach,” towards debt reduction coupled with a strong tariff hike that increases Vi’s average revenue per user (ARPU) by Rs 30 from current levels could put “the company on a recovery path”. Vi’s ARPU  a key performance metric - fell 3% sequentially to Rs 104 in June quarter, FY22. BNP estimates a Rs 30 increase in Vi’s ARPU would result in Rs 9,000 crore annual additional revenues.

Vodafone Idea has also toyed with the idea of converting its debt into equity. However, that will make the government the biggest shareholder in the telco.

Right now, Vi's co-promoters, Vodafone Plc and Aditya Birla Group own 44.39% and 27.66%, respectively in Vi. However, if VIL goes that way, analysts say that it will find it difficult to attract private investment and top talent. BNP added, “if Vi becomes majority-owned by the government, it may find it difficult to remain an attractive brand for high-value corporate or retail postpaid consumers who look for strong network, customer service and an aspirational brand".