They added that without an early equity infusion, the cash strapped telco would continue to be short on 4G capex funds and concede more market share to financially-stronger rivals, Reliance Jio and Bharti
, who are known to be investing far bigger sums on capex to boost network coverage and capacity.
“If Vi has to preserve its current 19% RMS, it will have to raise (an estimated) $2.5 billion in equity and double its capex run-rate,” IIFL Securities said in a note. The brokerage estimates Airtel and Jio’s latest RMS levels at 35% and 40% respectively.
On Monday, Vi’s managing director Ravinder Takkar had said the telco would update its business plan and expects to close its much delayed fundraise by end-March FY22.
JM Financial said Vi’s capex is “still very low” (Rs 1,300 crore in 2QFY22), which could over the medium term interfere with user experience and also the telco’s ability to upgrade subscribers to 4G as well as retain existing users. By comparison Airtel and Jio are estimated to be investing nearly $3 billion each in annual capex spends.
IIFL added Vi would also need to boost its average revenue per user (ARPU) – a key telco performance metric – to Rs 207 to reduce its leverage ratio (read: net debt to Ebitda) to 10x by end-FY24 from the current 34x elevated level. The telco’s ARPU was at Rs 109 in the September quarter, significantly lower than Airtel’s (Rs 153) and Jio (Rs 144).
To be sure, J P Morgan, said the recent structural reforms in the telecom sector are “positive and delay near-term liquidity challenges for Vi and also ensure a three-player market”. But it does not expect the reforms alone to “materially change Vi’s ability to invest in capex without a capital raise or a substantial tariff hike”.
Takkar, on his part, has said Vi won’t wait for its rivals to raise rates.
Analysts said Vi also needs to expand its largely stagnant pool of data users to see meaningful revenue growth in coming quarters.
ICICI Securities said, “major revenue growth won’t be possible for Vi” until it starts expanding its total data subs base, “which has not grown since the merger of erstwhile Vodafone India and Idea Cellular” three years ago. The telco’s data users base marginally dipped 0.6% on-year to 137 million in Q2FY22, the brokerage said in a note.
Last Friday, Vi posted a net loss of Rs 7,144.6 crore in the September quarter and is weighed down by Rs 1.94 lakh-crore of debt. It also has Rs 6,000 crore of non-convertible debentures (NCDs) maturing by February 2022.
At its Q2 earnings call Monday, Vi’s leadership said the company is in negotiations with banks to increase limits for meeting payment obligations, including upcoming NCDs.
