Without fundraising, Vi may face Rs 6,400-cr cash shortfall by September, say analysts

Vodafone Idea (Vi) could be staring at a potential Rs 6,400 crore cash shortfall by September 2023 if it is unable to close its much-delayed fundraise quickly or raise tariffs, say analysts. They added that in absence of an early capital raise, Vi would need to boost its average revenue per user (ARPU) sharply to meet its upcoming Rs 9,600 crore debt repayment in the next 12 months.

“Per the company (read Vi), $1.2 billion (Rs 9,600 crore) of debt is payable by Sep '23, while gross cash balance as of Sep '22 is Rs 200 crore… So without a capital raise, ARPU for Vi will have to rise by Rs 35 for the company to be able to meet its immediate repayment needs by Sep '23 (including capex, debt and interest expenses),” Goldman Sachs said in a note.

The global brokerage expects the upcoming debt repayment to further pressure Vi’s ability to incur capex, adding that for the telco’s competitive positioning to improve, it would need a substantial capital raise or a tariff increase. It estimates that Vi’s ARPU would need to rise by 2.5x for the company to be FCF neutral by FY27.

Vi’s ARPU—a key performance metric—rose 2.3% sequentially to Rs 131 in the fiscal second quarter, it still materially lags Bharti Airtel and Reliance Jio’s ARPUs of Rs 190 and Rs 177 respectively.

Goldman Sachs expects Vi to take a tariff hike in the current quarter, which coupled with the full quarter impact of lower spectrum usage charge (SUC) payouts, is likely to boost its operating margins by 24% in the October-December period. The loss-making telco’s operating margins had narrowed to 38.6% in the September quarter due to higher finance and marketing spends.

Vi’s efforts for over a year to raise Rs 20,000 crore via a mix of debt and equity have not yielded results yet. Besides rolling out 5G, it needs cash to repay over Rs 12,000 crore of dues to large vendors such as Indus Towers, Nokia and ATC, and also invest in 4G network capex to rein in heavy customer losses to rivals Jio and Airtel.

Vi’s net loss for the September quarter widened to Rs 7,595.5 crore sequentially from Rs 7,296 crore, dragged by higher finance and operating costs even as it lost 6 million subscribers, hurt by its inability to beef up its 4G operation.

ICICI Securities, though, said Vi’s enterprise business grew faster at over 15% on-quarter to Rs 1,300 crore, which was partly driven by higher revenues from international long distance (ILD) services.

However, Vi is the only telco not to have given a timeline for launching 5G services, which, analysts believe, could lead to more market share losses to stronger rivals, Jio and Airtel.

“Vi has bought enough 5G spectrum and requires capital only for rolling out the network, but aggressive deployment is dependent on the company’s ability to raise more capital, especially as peers are gearing up for faster 5G deployments,” ICICI Securities said.

Vi’s CEO Akshaya Moondra, though, recently downplayed worries around the telco’s delayed 5G launch, saying the handset ecosystem would take time to evolve, and if the funding could be lined up in a couple of months, the telco would be able to rollout 5G networks quickly, regardless of Airtel and Jio’s early mover advantage.