Analysts said the moratorium, which comes into effect from Oct, will allow the operators to conserve capital to the tune of ₹25,000 cr annually in combined spectrum and AGR dues, allowing them to fund capital expenditure and 5G spectrum purchases
Concerns about the survival of Vodafone Idea Ltd receded, with the government announcing on Wednesday a raft of relief measures, including a four-year moratorium on regulatory dues, to help struggling telecom operators, according to industry experts.
Analysts said the moratorium, which comes into effect from October, will allow the operators to conserve capital to the tune of ₹25,000 crore annually in combined spectrum and adjusted gross revenue (AGR) dues, allowing them to fund capital expenditure and 5G spectrum purchases. “The concerns around the company’s survival are now off the table as strategic investors would now be keen to infuse capital, given a credible road map, policy clarity and visible improvement in near-term cash flows," said Prabal Basu Roy, a former director of Lucent Technologies and currently director and adviser to company boards.
A senior Vodafone Idea executive, who requested anonymity, said with the current measures in place, Vodafone Idea may now review its fundraising plans of ₹25,000 crore, which it has been trying to raise unsuccessfully since September last year after the Supreme Court ordered telcos to pay AGR-related dues of ₹1.8 trillion over 10 years till March 2031.
“With the moratorium in place, the company may not immediately need a cash infusion," the executive said. “A final decision in this regard will be taken in the coming days," the person added.
Analysts, however, cautioned that while the immediate worries for the company may be over, it will need to strengthen its balance sheet by raising tariffs, given that the moratorium is a deferral of payments and not a waiver and the impact on the balance sheets of telcos will be neutral. That said, “the government relief package will help Vodafone Idea tide over the short-term. However, in the long term, it may still find it challenging to manage cash flows," said Aliasgar Shakir, an analyst at Motilal Oswal.
Companies need to boost their average monthly revenue per subscriber to recover sustainably. “Telcos would still need to raise tariffs for sustainable improvement in cash flows. They have started doing so selectively to drive up average revenue per user (Arpu)," said Nitesh Jain, director, CRISIL Ratings. “However, broad-based tariff hikes in the prepaid segment, which last happened in December 2019, remains on hold. We expect telcos to raise tariffs by at least 20%, equivalent to a ₹25-30 increase in the monthly Arpu by the end of this fiscal," Jain added.