Despite the Supreme Court’s rejection of the curative petition for AGR dues, Vodafone Idea Ltd (VIL) is hopeful of a resolution of the arithmetical error in the AGR dues calculation and is in fresh talks with the Centre, the company chairman Ravinder Takkar said during a conference call earlier this week. VIL said that its case has strong merit, and dialogue with the government is and has been encouraging. The company is also factoring in Rs 290 billion of government debt – to be converted into equity at the end of the moratorium period, as per the reform package. Meanwhile, VIL is also nearing closure of debt funding of Rs 350 billion (Rs 250 billion loan and Rs 100 billion LC facility) that should help boost capex. The company has also signed deals with major equipment suppliers for Rs 300 billion, for radios to be supplied over the next three years, and it expects capex to kick start from November 2024, stated a report by ICICI Securities while maintaining that the company also envisages another tariff hike of 15-20 per cent in 15 months. Vodafone had earlier announced a price hike in the range of 11-24 per cent in July this year, along with Bharti Airtel and Reliance Jio.
VIL nearing completion of debt funding
While VIL is very close to complete raising of Rs 250 billion of funded debt, and Rs 100 billion of non funded debt, ICICI Securities said that LCs will help the company import or procure radios and other telecom equipment. “The company’s capex plan remains firm at Rs 500–550 billion over the next three years, and it has signed radio suppliers Nokia, Ericsson and Samsung for a total requirement of Rs 300 billion. Remainder capex includes investment in core, and transmission (fiber). VIL’s plan suggests that it will likely see higher spend on 5G in the next three years compared to 4G. The company will likely expand its 4G coverage from 1.03 billion population coverage to 1.2 billion; and potentially scale-up its 4G site from 170k to 250k.”
Per a report by Motilal Oswal Financial Services (MOFSL), VIL’s radio equipment capex is critical and a substantial part of the capex rollout, which includes expanding 4G coverage and launching 5G. “This is part of a three-year capex plan worth Rs 500-550 billion, where the remaining Rs 200-250 billion will be allocated to core and fiber. The company will deploy core and fiber coverage capacity on a need basis. Hence, we expect the long pending capex rollout to commence from Q3FY25 onwards and the subscriber metrics to improve from Q4FY25 onwards. In order to increase 4G coverage, the company plans to add 215-220k sites, up from the existing total of 170k sites,” the brokerage firm said.
Cashflow believed to sustain operations
ICICI Securities said that VIL has not factored an AGR resolution into its business plan; therefore, rejection of the curative petition does not derail its recovery efforts. However, it added, the company has factored in conversion of interest within EMI to equity by the government at the end of the moratorium period (as announced in the reform package) of Rs 290 billion. “Cashflow towards government dues in FY26 is Rs 290 billion, of which Rs 120 billion is likely to be converted into equity; and in FY27, the total government payment shall be Rs 430 billion, of which Rs 170 billion is likely to be converted into equity. VIL’s capex of Rs 500–550 billion should be funded through equity alongside Rs 250 billion of debt. FCF will likely be channeled into paying government dues, and creditors liabilities,” the analysis report by ICICI Securities stated.
Another tariff hike in the offing?
VIL is expected to announce another tariff hike of 15-20 per cent in 15 months, in order to help the company grow revenue, EBITDA and FCF. Further in terms of subscriber addition, the company believes that 4G rollout will help it improve customer retention, resulting in growing subscriber base.
From: financialexpress
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