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Fundraising continues to remain critical for Vodafone Idea

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Of the Rs 1.98 trillion gross debt, VIL owes Rs 1.8 trillion to the government towards deferred payment liabilities on the spectrum and adjusted gross revenue (AGR) dues. The company’s external debt outstanding declined to Rs 18,100 crore at the end of March 2022 versus Rs 23,100 crore at the end of the December quarter.

Fundraising will continue to remain critical for Vodafone Idea (VIL) to protect against further erosion of market share. Also, with Rs 8,200 crore of debt coming up for repayment in the financial year 2022-2023, the debt-laden telco would require external fundraising and further tariff hikes to meet the repayment, analysts said.

VIL’s promoters infused Rs 4,500 crore through equity in the company, but promoter infusion at a premium, while positive for sentiment, is not enough for the telco’s revival.

“Large and expedited fundraising remains critical for VIL, but it has proven elusive so far. Without significant fundraising, we think VIL’s network investments and 5G rollout would remain constrained, at least in the near-term, leading to further market share erosion,” analysts at Nomura said.

Of the Rs 1.98 trillion gross debt, VIL owes Rs 1.8 trillion to the government towards deferred payment liabilities on the spectrum and adjusted gross revenue (AGR) dues. The company’s external debt outstanding declined to Rs 18,100 crore at the end of March 2022 versus Rs 23,100 crore at the end of the December quarter.

VIL’s net debt excluding leases was marginally lower at Rs 1.96 trillion at the end of Q4 on account of promoter infusion and release of margin money post returns of bank guarantees worth Rs 16,000 crore. The net debt was at Rs 1.98 trillion as of December 2021.

According to analysts at Credit Suisse, of the Rs 4,500 crore fundraise from the promoters in March 2022, about 75% was used to repay outstanding dues to Indus Towers, and future fundraise remains critical for the company to be able to participate in 5G spectrum auctions. “We believe that VIL would need a meaningful fundraiser in the near term to participate in 5G spectrum auctions along with strong structural improvement and periodic tariff hikes to meet cash outflows post the end of the four-year moratorium,” said analysts.

However, the company’s financial performance was better than expected, with health numbers reported on the back of a tariff hike and an improved subscriber mix. A near 20% tariff hike effective from December 2021 resulted in a healthy 5.8% quarter-on-quarter and 7.8% sequential growth in mobile revenues and average revenue per user (Arpu) respectively.

While the company continued to lose subscribers during the quarter with that number at 3.4 million in Q4, it was much lower than estimates of 4.4 million. The company ended the quarter with 243.8 million subscribers.

The performance was better in the 4G segment, and despite the tariff hike, the company gained 1.1 million 4G subscribers to end the quarter with 118.1 million 4G subscribers, indicating that most of the churn was in low-Arpu 2G subscribers, said an analyst at UBS. VIL’s subscriber churn remained stable at 3.4% sequentially.

Higher prices and improved customer mix resulted in a good 7.8% growth in Arpu which came in at Rs 124 in Q4FY22, however, it lags significantly behind Bharti Airtel and Reliance Jio.

The total data volume and monthly data usage were broadly flat sequentially. While the capex increased from Rs 1,050 crore in Q3FY22 to Rs 1,210 crore in Q4FY22, it remains well below peers.

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