The looming threat of the telecoms industry becoming a duopoly is very real as Vodafone Idea (VIL) struggles to meet its payment obligations, analysts say.
According to analysis by Credit Suisse, VIL’s cash generation is still insufficient and a cash balance of 3,500 crore is dangerously low. According to the Credit Suisse report, VIL will need a significant injection of capital to break out of this vicious loop of underinvestment and loss of market share.
VIL has approximately 22,500 crore in dues payable between December 2021 and April 2022, which includes Supreme Court-mandated Adjusted Gross Income (AGR) as well as annual spectrum payments of 15,900 crore which are due from April 2022. after a two-year moratorium.
Institutional and investment brokerage firm CLSA predicts that AGR resolutions and rate hikes are inevitable, otherwise VIL will head into a financial crisis by FY 23, and the industry will head into a duopoly.
With only a few months before the start of repayments, VIL requires interventions such as a significant capital increase, or a sharp increase in prices, or a 2x increase in average income per unit in order to remain cash neutral. According to Goldman Sachs estimates, this is likely a low probability scenario.
Goldman Sachs also gave VIL a sell rating, which means the stock will trade much lower in the months and years to come. “We believe that investors’ attention remains on Vodafone Idea’s indebtedness situation and the company’s ability to raise short-term capital. We view the risk / return for Vodafone Idea as unfavorable and remain listed for sale, ”said the Goldman Sachs report.
Overall, for this quarter, VIL saw a moderate increase in its subscriber base in the 3G and 4G space, with an addition of 4.2 million 4G subscribers. Analysts, however, remain skeptical about the sustainability of the trend. The loss of subscribers remained stable at 2 million. However, they still lagged behind their peers (Bharti 14 million under-increase and Jio 15 million under-increase), suggesting that VIL is still losing voice clients moving to peers, according to JP Morgan. .
According to CLSA, VIL’s debt burden for FY21 is also huge at 1.8 lakh crore, of which 96,300 crore is spectrum liability and 61,000 crore is AGR liability. The operator on Wednesday said it was still in talks with potential investors on raising funds of 25,000 crore. But he said there is significant uncertainty surrounding his ability to continue operating even though he has fulfilled all of his obligations to date.
VIL reported a consolidated net loss of 7,022.8 crore for the fourth quarter ended March 31, 2021, compared to a loss of 11,643.5 crore recorded in the same period a year ago. The telecommunications operator had recorded a net loss of 4,532.1 crore in the sequential third quarter ended in December.