Analysts said the relief package is focused on annual cash outflow deferral for telcos, which provides the much-needed relief to Vodafone Idea. It is a forward-looking one, they said, the package also included long-term measures such as the elimination of SUC on future spectrum purchases, a change in AGR definition and reduction in bank guarantees.
That said, the measures do not offer any relief on the balance sheet or profit & loss (P&L).
Vodafone Idea would still be required to pay its debt when the four-year moratorium ends and would need to pay interest on the deferred amount. While interest cost on the deferred amount can be paid through equity, that may rule out any equity value creation, analysts said.
Kotak Institutional Equities said Vodafone Idea may require average revenue per user (Arpus) of Rs 300-500 at different levels of subscriber base to manage its liabilities even after converting deferred amount to equity after the four-year moratorium.
“The absence of relief on the balance sheet or P&L may rule out any meaningful equity value creation. Moreover, Vodafone Idea may continue to lose subscribers as it remains behind Bharti and Jio on network,” it said.
JPMorgan said it does not think the package would materially change Vodafone Idea’s ability to invest in capex or go for substantial tariff hikes. “The onus now shifts to Vodafone to complete its capital raise and start reinvesting in the network,” said Citi.
As far as the math goes, the moratorium move will cut Vodafone’s annual cash outgo toward government dues to Rs 3,100 crore from Rs 25,300 crore starting in FY23, with an option of converting the same into equity for the government. The annual outflows to the government, however, will increase substantially to Rs 47,700 crore from FY27.
“Our estimates already factor in a 15-18 per cent tariff hike in H2FY22, which is essential for VIL to adequately invest in the business to stop the ongoing subscriber losses and comfortably fund interest charges on bank debt. We believe VIL would opt for equity conversion for interest payout during the moratorium period, resulting in a sizable dilution and that might restrict potential equity infusion from any financial/strategic investor,” Emkay said.
Kotak said Vodafone Idea may still remain a fragile player with a declining subscriber base, given its inability to catch up with Bharti and Jio on network capabilities and service offerings. “The government’s aim to maintain industry structure being clear now, we expect the operators to expedite tariff hikes and compete on other fronts to gain and retain subscribers,” it said.
CLSA said the sector may remain an oligopoly. It feels inevitable tariff hikes will improve the health of the debt-ladden sector.
UBS finds the package to have ‘meaningful’ immediate relief to Vodafone idea.
, it said, would save Rs 11,000-15,000 crore but the impact of the package on Jio will be less.
At 10.10 am, the Voda Idea scrip traded at Rs 9.83, up 10 per cent. This was in addition to a 2.8 per cent rise on Wednesday and a 9.17 per cent surge on the counter on Tuesday.
