The telecommunications company had raised 25 billion rupees in 2019 on a rights issue. But that considerable sum hid a contribution of Rs 17,920 crore from promoters Vodafone and the Aditya Birla Group.
This time it seems unlikely that the partner Vodafone will put more money. Analysts said that now all eyes would be on whether the company succeeds in attracting a strategic investor or a large private equity player with a deep pocket, whose name may increase the confidence of other potential investors.
If that happens, the company, which has now been rebranded Vi, could be in a good position to raise money from the equity or debt markets, or both. The next few months will be crucial, analysts said.
Vi should take several steps to raise the desired funds, said Sameer Kalra of Target Investing.
“The first step would be to monetize all your non-essential assets, including the data centers and the Indus Towers stake, which should yield Rs 8-9 billion. So the company would seek to attract a large strategic investor, or at least a wealthy private equity investor, who could invest billions of rupees. This would give investors a sense of stability in Vodafone Idea. The telco must do it fast for the next 3-6 months. Depending on how things unfold, the telco could explore other modes of fundraising, “said Kalra.
Rajiv Sharma, Head of Institutional Equity Research, Performance Coach and Strategist, SBICap Securities, considered that finding long-term strategic partners is a key aspect for the firm.
He said that fundraising Rs 25 billion by itself would not be adequate and can only help for a period of 12 to 18 months. “The equity parts will be produced first, and then the debt part, because they are already leveraged. If they go for any debt instrument at this time, they may have to agree to 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 income (AGR) of 50.4 billion rupees to the government over 10 years. Including AGR fees, the company has a debt of Rs 1.7 million lakh.
Undoubtedly, the British partner Vodafone Group has clarified that it would not invest any new capital in Vodafone Idea. In an emailed statement to the Economic Times, the British company said the group had no intention of investing new shares in Vodafone Idea. The group is expected to infuse around Rs 6.6 billion under pre-agreed merger terms. It has already invested over Rs 1.8 billion under this arrangement, out of a total corpus of Rs 8.4 billion.
For now, the company is expected to get around 4 billion rupees for its 11 percent stake in Indus Towers. You can also expect income tax refunds of around Rs 1,600 crore for VIL’s sale of stake in the merged entity Indus Towers-Bharti Infratel, and you may look to sell your data center and fiber, which can bring in $ 1.5- 2.1 billion.
Analysts said the recent rate increases could not significantly increase the company’s Ebitda. They said the expected cash flows, given the dilution of the subscriber base, would not be enough to keep the telco running. In addition, the company would also have to incur capital expenditures to stay competitive.
Geojit Financial Services said that while SC’s verdict allowing more time to settle AGR fees offers a lifeline for the company, it fears the company’s ability to meet payment deadlines without improving ARPU levels or gaining a higher capital contribution from promoters.
“Further cost optimization is required, along with a higher Arpus supported by higher prices and a likely capital injection to support the survival of the company in the coming months,” the brokerage said.
But can Vodafone Idea increase rates, given that peers are seeing an increase in subscribers at their cost, and could therefore refrain from raising rates?
Target Investing’s Kalra said the company has no choice but to raise rates, even if it means losing more subscribers.
“Once Vodafone is well funded, the competition may not find any reason to hold back and rates will go up more gradually,” Sharma said.
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