Even debt-ridden telecom operator Vodafone Idea’s financial performance in the March 2022 quarter was in line with industry expectations, with analysts saying long-term fundraising is crucial for the company to remain competitive.
According to a report by JPMorgan, high leverage Vodafone Idea (VIL) complicates the price of equity and makes it very sensitive to small changes in estimates, thus largely undesirable.
“We expect to transfer value to borrowers, including the Government of India, which is effectively the largest lender through spectrum obligations, including AGR arrears,” the report said.
VIL expects the government to complete the conversion of the company’s arrears of about Rs 16,100 crore into 33 per cent shares next week, a top official of the firm said. During the company’s earnings call, Vodafone Idea CEO Rabindra Takkar said that as part of the telecom reform package, the company has chosen to convert government arrears into equity and its proposal has been confirmed by the Department of Telecom (DoT).
After the conversion, the government will hold 33 per cent stake in the company while the promoters ’holdings will fall from 74.99 per cent to 50 per cent, he said.
“We have already chosen to convert the spectrum and AGR arrears as well as the interest arising out of such delays into equity. The net present value of interest liability at the time of suspension of AGR arrears and delayed spectrum liabilities has been confirmed with DoT at Rs 161.3 billion. With that, we hope the transition process will be completed next week, “said Takkar.
JPMorgan says the March 2022 quarter was a decent one but fundraising is still important for VIL’s competition.
The board has approved a further Rs 100 billion (Rs 10,000 crore) in funding and the agency is in talks with investors and lenders. We believe that raising funds is important to improve competition, “the report said.
VIL reduced its consolidated loss to Rs 6,563.1 crore in the fourth quarter ended March 2022, compared to the same period last year, with the average revenue per user (ARPU) increasing significantly with the increase in tariffs in November. Last year.
According to a company filing, VIL had a loss of Rs 7,022.8 crore a year ago.
Its revenue from operations grew by 6.6 per cent year-on-year to Rs 10,239.5 crore in FY22 Q4. Periodically, the revenue supported by the effective tariff increase increased 5.4 percent from November 25, 2021, the company said in a statement.
In terms of ARPU, measured per user usage – a key metric for telcos – has risen from Rs 115 in the previous three months to Rs 124 in the just-ended quarter. This has resulted in a gradual increase of 7.5 per cent in ARPU, although the company’s subscriber base fell to 24.38 crore from 24.72 crore in Q3 FY22, primarily due to tariff hike.
Takkar added that the industry needs to increase tariffs further.
“We want to see the ARPU increase to Rs 200 in the short run and then increase to Rs 250 or more in the long run,” he said.
As of March 31, 2022, the group’s total debt (including interest earned but not in arrears) was Rs 1,97,878.2 crore.
The company owes about Rs 8,160 crore in the next 12 months.
An IIFL Securities report states that the suspension of government payments until October 2025, refinancing of mature debt bonds and the recent tariff hike provide near-term relief.
“As the debt of Rs 82 billion matures in FY23, the ability to raise capital will remain under pressure unless Vi sees significant equity growth. Inadequate investment can lead to continuous RMS loss. We believe Vi is still far from being considered competitive enough to prevent its RMS collapse, “the report said.
A report by Edelweiss further states that VIL’s balance sheet has weakened due to high spectrum debt and AGR (Adjusted Gross Revenue) liability.
“The company has invested less in the network than its peers, which has resulted in less 4G capacity and less share for 4G customers. Weak balance sheets further impede VI’s ability to invest in networks. Therefore, in order to meet the challenge, the company needs to increase its material duty and increase its capital, ”the report said.
VIL recently raised Rs 4,500 crore through allotment of preferential shares to Vodafone plc and Aditya Birla Group, and the proceeds were used to pay off debts to Sindh, reduce debt and incur capex.
” Delayed tariff increases will lead to a decline in the company’s customer base, which could permanently affect its ability to recover. Also, the company’s inability to raise capital will have a negative impact on network investment, which is crucial for gaining a proportional share of 4G subscribers. Other companies investing in 5G could also be a risk factor, “the Adeleweis report said.