Vodafone Idea may need up to ₹18,800 crore in next two years and tariff hikes to survive, says a new report

Kumar Mangalam Birla, Chairman, Aditya Birla Group and Idea Cellular Limited, and Mr. Vittorio Colao, CEO, Vodafone Group Plc at the Idea Vodafone merger press conference in MumbaiBCCL
  • Vodafone Idea needs a combination of tariff hikes, government support and fund raising to survive in the market, say analysts.
  • The struggling telco has a total (adjusted gross revenue) AGR liability of ₹58,254 crore, out of which ₹50,339 crore is still due.
  • The gap between Vodafone Idea’s operating profit and the payments due may balloon to ₹18,800 crore in next two years.
  • Reports of an investment of more than $4 billion by Amazon and Verizon sent the stock rallying by 30% on September 3, suggesting that investors believe Vodafone Idea is in a dire situation.
  • Check out the latest news and updates on Business Insider.
Vodafone Idea is staring at a difficult road ahead. With the Supreme Court fixing a 10-year payment timeline for the adjusted gross revenue (AGR) dues, the struggling mobile service provider needs a combination of tariff hikes, government support and fundraising to survive.

According to a report by Jefferies Equity Research, dated September 1, Vodafone Idea could require up to ₹18,800 crore by the end of March 2023. To do so, it will need to raise money since its existing operating profit is less than annual payments that will be due. Therefore, the Board is meeting today (September 4) to consider a proposal to raise funds.

ParticularsAmountLiabilitiesAmount
Free cash flow₹2,500 croreAnnual AGR obligation₹7,844 crore
Operating profit (annualised)₹6,100 crore
Cost savings from Vodafone-Idea merger₹4,000 crore

Source: Company reports, Jefferies Equity Research
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Note: Annual AGR dues computed with an assumption of 9% interest rate per annum.

But beyond FY21, the cash gap will widen to ₹4,200 crore and by FY23, it will balloon to ₹18,800 crore, the report states.


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What does Vodafone Idea need to do to survive?

There are two ways for Vodafone Idea to continue its operations – tariff hikes and additional fund raising.

In the first round of tariff hikes of 30%, Vodafone Idea’s operating profits increased by 20%. “Vodafone Idea may need additional support from the government in the form of a further 2-year moratorium on deferred spectrum liabilities to remain solvent beyond FY23,” the report added.

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Apart from this, fundraising also remains a critical piece of the puzzle for the company.

Reports of an investment of more than $4 billion (approx. ₹30,000 crore) from US giants Amazon and Verizon led to a 30% jump in the company’s share price on September 3. Another report suggested that the company is planning $1.5 billion (approx. ₹7,400 crore) fundraising via stake sale.

Vodafone Idea’s board is assembling today to evaluate any and all fundraising proposals it has received.
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If this deal goes through, Vodafone Idea will have enough room to breathe easy for now and meet its AGR obligations. It could also allow the company to undertake capital expenditure required to boost its network quality and stem the outflow of subscribers.

SEE ALSO:

Only cash can save Vodafone Idea from a slow death

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Vodafone Idea shares surge more than 30% after Google reportedly considers a stake in the debt-laden telco