Vodafone-Idea: Cranking up the fund raise dial

Vodafone Idea approves plan to raise fresh capital to take on rivals, but experts paint an uncertain future for the telecom operator

Salil Panchal
Published: Sep 15, 2020 01:34:42 PM IST
Updated: Sep 15, 2020 01:44:10 PM IST

Life is not a template and neither is mine. Like several who have worked as journalists, I am a generalist in my over two decade experience across print, global news wires and dotcom firms. But there has been one underlying theme in each phase; life gave me the chance to observe and tell a story -- from early days tracking a securities scam to terror attacks and some of India's most significant court trials. Besides writing, I have jumped fences to become an entrepreneur, as an investment advisor -- and also taught the finer aspects of business journalism to young minds. At Forbes India, I also keep an eye on some of its proprietary specials like the Rich list, GenNext and Celebrity lists. An alumnus of Xavier Institute of Communications and H.R College of Commerce and Economics in Mumbai, I have worked for organisations such as Agence France-Presse, Business Standard, The Financial Express and The Times of India prior to this.

vodafone ideaImage: Rupak De Chowdhuri / Reuters

Telecom operator Vodafone Idea has approved a plan to raise fresh capital via equity and debt worth ₹25,000 crore, which will give it a fresh lifeline to battle well-muscled rivals such as Reliance Jio and Bharti Airtel. The money will be used to help it pay government dues and boost investments towards its network operations. In a ruling this month, the Supreme Court has allowed telecom companies 10 years to pay up their adjusted gross revenues (AGR), with 10 percent of the total dues to be paid by March 2021.

For Vodafone Idea, the situation becomes even more precarious as it continues to lose subscribers to rivals, its AGR dues are higher than Bharti’s and has higher debt estimated at ₹115,500 crore. The only way it will remain viable is through tariff hikes in coming quarters and by raising more capital.

Vodafone Idea posted a consolidated net loss of ₹25,460 crore in the June-ended quarter. This is the eighth successive quarterly loss it has suffered. In September, the company also unveiled a unified brand logo and name Vi (pronounced We), over two years after the merger of Vodafone India with Idea Cellular. 

It has now approved raising up to ₹15,000 crore either through equity shares, global depository receipts, American Depository Receipts, foreign currency convertible bonds, convertible debentures or warrants. It has also approved raising ₹15,000 crore by issuing non-convertible debentures through a public offer or a private placement. These moves will come up for approval at an annual general meeting on September 30.

“There are assumptions being made [for Vodafone] which is based on the current business model. But if Amazon or Google or any other large investor were to come in, it can change Vodafone Idea’s ability to raise revenues. We must not forget that Vodafone also has a substantial B2B business,” says a telecom expert. Investment was not coming in as there was a lack of clarity due to the pending court verdict; it is out now. 

However, telecom analysts are painting an uncertain future for the operator. “Vodafone Idea should be able to manage the cash flow requirement in FY21 without a price hike. But in FY22, it would require an annual ₹6,600 crore AGR liability payment, which would increase its annual requirement to ₹16,100 crore. Hence, to offset the cash requirement, it would have to take a near-22 percent price hike to manage the funding requirement,” says Motilal Oswal’s telecom analyst Aliasgar Shakir.

Vodafone’s average revenue per user was at ₹114 for the June-ended quarter compared to ₹157 for Bharti Airtel and ₹140.3 for Reliance Jio [Reliance Industries is the owner of Network18, the publisher of Forbes India] in the same period.

Jio, Airtel and Vodafone have in the past two months revamped some of their existing tariff plans and introduced new ones. In December 2019, a 25 percent rise in tariffs resulted in a 20 percent rise in Ebitda for Vodafone Idea. Hence, just huge price hikes will not be the only solution for the company. The real game changer could only be a strategic investment from a large global technology giant.

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(This story appears in the 25 September, 2020 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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