Vodafone idea has debts exponentially higher than it’s ability to repay them. The government has provided telecoms the option of repaying interest on dues with equity and has stated that it has no intention of purchasing any telecom firm.
“They (the government) have made it quite apparent that they want three private players to continue. They want us to be able to compete in the market. They desire that we operate in a competitive manner “Takkar said.
As of June 30, 2021, VIL has a total gross debt of Rs 1.91 lakh crore, excluding lease liabilities and including interest accrued but not payable. The debt consists of Rs 1.06 lakh crore in postponed spectrum payment commitments and Rs 62,180 crore in AGR liabilities owed to the government, as well as Rs 23,400 crore in debt owed to banks and other institutions.
During the April-June period, the business reported consolidated revenue of Rs 9,152.3 crore and financing cost of Rs 5,228.4 crore.
According to Jefferies, the four-year payment moratorium will provide VIL with cashflow relief and “may lead to the government buying up a significant share in VIL.” According to the investment banking firm analyst study, the government may control 26% of VIL at the conclusion of the four-year period if the telecom decides to pay the cumulative interest of Rs 9,000 crore through equity.
Takkar stated that from the business’s standpoint, exercising the equity option for interest payment is the least important area of emphasis, and VIL is devoted to operating the company.
“Our aim is to repay the government, and this will be reflected in our business strategy. But having the option to turn it into stock is a bold step that assures that if the sector is not repaired, the government will continue to support it for as long as it needs to be “Takkar said.
According to Credit Suisse, the moratorium would relieve VIL’s immediate cash flow problems, but it will also need to borrow roughly Rs 7,300 crore over the next 6-9 months to repay its non-spectrum debt and ride through these four years with minimum investment.
Despite the moratorium and equity conversion of interest over the time, VIL will require an ARPU (Average Revenue Per User) of Rs 240 by fiscal year 2026 to fulfil Rs 33,000 crore in yearly spectrum payments and AGR dues that must be serviced during the remaining duration.
Takkar stated that the firm will update its business plans after the government releases rules on the different measures proposed as part of the telecom reforms, and that it may seek board permission for fund raising to bridge the gap necessary to fulfil business objectives.
According to him, the government’s reform initiatives have given industry confidence that tariffs may be raised.
“Pricing, in my opinion, is a major reason why the business has reached this point. Pricing in the sector will almost definitely improve as a result of this government package. We have reached a point in the industry where there are three players “He stated.
Bharti Airtel and VIL have advocated for an increase in mobile service tariffs in order to alleviate financial difficulties.
According to Takkar, there are three private companies remaining in the market, and everyone wants prices to rise.
“We don’t know what the other player’s intentions will be. Because of this lack of trust, no one wants to take a stand on their own. In that climate, with the government package now in place, that (trust gap) disappears, implying that the industry can handle price rises without government interference, which I believe it will. I can definitely see that occurring in a short amount of time. It will happen gradually, but it will happen “Takkar said.
In the first quarter ended June 30, 2021, VIL reported an average revenue per user (ARPU) of Rs 104, while competitors Bharti Airtel and Jio reported ARPUs of Rs 146 and Rs 138.4, respectively.
Even though Indian telecom is currently a duopoly of Airtel and Jio, Vodafone Idea with its 27 crore subscribers remains a critical part of the sector. It remains to be seen how the government will react to the offer.
As foreign investors are hesitant to invest in Vodafone Idea due to just how dominant Jio and Airtel are, the government’s decisions might spell life or death for Vodafone Idea. What do you think of Vodafone Idea? Let us know in the comments!
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