With government keen on Vodafone Idea lifeline, it’s time for fund infusion
- Telco’s annual cash requirement needs a 32% rise in realizations or average revenue per user over the next 6-9 months
- The instalment plan, if allowed by the apex court, will also lift the value of the group’s investments in tower infrastructure
Shares of Vodafone Idea Ltd surged about 60% in the past month, at a time when the benchmark BSE 200 index fell 25%. The stock still trades at a fraction of the year-ago levels. However, optimism about the stock is gradually creeping in, with the government trying its best to avert a shutdown of the company’s operations.
Vodafone Idea has paid the government ₹6,854 crore towards its adjusted gross revenue (AGR) liabilities, stating that this was the full principal amount based on its self-assessment. On its part, the government has requested the Supreme Court to let the telecom companies pay interest and penalty related to their AGR liabilities over a period of two decades.
If the Supreme Court agrees, taking the view that telcos are showing the intent to pay, it will be a huge relief for Vodafone Idea. As of December-end, the company had cash and cash equivalents of ₹12,530 crore. On payment of dues worth ₹6,854 crore, cash levels would halve to ₹5,676 crore. By March-end, the actual cash in hand with the company is likely to be even lower after accounting for cash burn during the quarter.
The instalment plan, if allowed by the apex court, will also lift the value of the group’s investments in tower infrastructure.
Even so, the deferred payment plan can take the company only so far. Earnings remain way below expenses.
“Even if Vodafone Idea pays the principal amount for AGR dues to comply partially with the SC order, the current cash and equivalent and future cash flows will prove insufficient to meet its financial obligations,” said India Ratings and Research Pvt. Ltd in a ratings review note last month.
To bridge the gap, Vodafone Idea will have to infuse fresh capital or implement hefty tariff hikes. Its annual cash requirement needs a 32% rise in realizations or average revenue per user over the next six-nine months, according to Motilal Oswal Financial Services Ltd.
Meanwhile, there is also talk of a floor price for mobile services, which is expected to boost realizations. However, it is not clear how far this would help.
It is crucial, therefore, for Vodafone Idea’s promoters to infuse fresh funds into the company to protect its market share and consolidate its position. Rival Bharti Airtel Ltd is in a far stronger position because of its massive fundraising in the past year.
“Vodafone Idea is currently cash starved and will require capital infusion to sustain beyond two to three quarters. Also, in the absence of significant tariff hikes, Vodafone Idea’s ability to service its high net debt raises doubts,” said analysts at Motilal Oswal.
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