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Vodafone Idea to be worst affected as tariff hikes expected after June 2024

Analysts estimated that the Aditya Birla Group promoted telecom services provider will face a cash shortfall of  ₹5400 crore in FY24 and survival would be a challenge without a large and expedited fund raise.
Analysts estimated that the Aditya Birla Group promoted telecom services provider will face a cash shortfall of 5400 crore in FY24 and survival would be a challenge without a large and expedited fund raise.

Summary

Telecom sector watchers said that they did not see a credible revival case since the No 3 telco has a large Rs1.96 trillion debt outstanding to the government which could lead to significant equity dilution down the road and make it unattractive for potential equity investors

NEW DELHI : Upcoming state elections and general elections next year are set to delay any increase in headline tariffs to beyond June 2024, which willadverselyimpact all three carriers - Airtel, Jio and Vodafone Idea - but Vodafone Ideawill be the worst impacted,according to analysts, noting thatwithout a tariff hike or fund raise FY24 will be tough for the No 3 carrier.

Sector watchers said that they did not see a credible revival case since the No 3 telco has a large Rs1.96 trillion debt outstanding to the government which could lead to significant equity dilution down the road and make it unattractive for potential equity investors.

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Graphic: Mint

“The rising competitive intensity to attract premium subscribers and several key state and general elections over the next 12 months wouldlikely delaytariff hikes to June 2024 (after the general elections). Though a delay in the tariff raise is negative for all three telcos, we believe Vi would be the worst impacted.," analysts atKotak Institutional Equities Researchsaidin a note.

Analysts estimated that the Aditya Birla Grouppromoted telecom services provider will face acash shortfall of Rs5400 crorein FY24 and survival would be a challenge without a large and expedited fund raise.In addition to this, Vodafone Idea owesnearly Rs13500croreinvendor payments.

“We do not see Vi’s capex increasing significantly to plug the gap versus peers on 4G, let alone the 5G rollout... potential large equity dilution (after moratorium in 2HFY26) could limit Vi’s ability to attract equity investors, in our view. We do not see a credible case for Vi’s revival yet," the research firm said.

Brokerage house Emkay said in a note that Vodafone Idea would need a steeper tariff hike to survive, even after further conversion of dues into equity by the government, post moratorium.

Vodafone Idea chief executive officer AkshayaMoondrasaid last week that promoters were ready to put in more equity, and that discussions with external investors had picked up pace over the past month, with at least three such discussions that were ongoing. The chief executive added that talks also picked up pace after Aditya Birla GroupchairmanKumar Mangalam Birla came back on the carrier’s Board of Directors.

He added that the company was working towards closing the funding from external investors, which had been held up due to delay in the equity conversion by the government. Vodafone Idea has been trying to raise 20,000 crore since 2021. after the conversion of equity by the Indian government

Mint had reported earlier this month that the No 3 carrier was working on a revival plan which will be shared with the DoT and that the government was concerned about the delay in promoters putting in additional equity as was committed when the government took up 33% equity in the carrier in lieu of interest on dues of 16,000 crore of spectrum payments and AGR payments that were due to the government.

Analysts at JP Morgan noted that the carrier continued to struggle to close the fund raise that is critical to drive 5G as well as 4G capex and repay vendor dues, despite being in discussions with both banks and external investors. “A fund raise remains critical to improve competitiveness as delay in 5G capex would put Vodafone Idea on the back foot with high ARPU subs versus peers that have begun rolling out 5G services, in our view," they said in a note.

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