Does Vodafone Idea have a cushion to sail through the current year?

Much would depend on whether the govt gives it yet another year's moratorium on Rs 8,200 cr spectrum payment due next March, and its ability to raise Rs 25,000 cr more from investors

Vodafone Idea (VIL) was banking on a favourable judgment from the Supreme court on the calculation of its AGR dues, which would have reduced its cash shortfall for running the business in FY22.

But the expectation by analysts that its AGR could go down by half (from Rs 8,000 crore per annum) is now history, with the Supreme court today rejecting its plea and raising the spectre on whether it can survive as a going concern.

So the key question is whether VIL has enough cushion to sail through even FY22. That would clearly depend on whether the government gives it yet another moratorium on payment of its spectrum (Rs 8,200 crore due next March) for a year or by FY23. And if it can pull though by raising an additional Rs 25,000 crore from investors. If these do not happen it is in serious trouble.

The reason is simple. Analysts say that the estimated cash shortfall of VIL would be to the extent of Rs 23,400 crore in FY22, taking into consideration its estimated EBIDTA and current cash balance.

The decision of Bharti Airtel to raise post-paid tariffs yesterday, if followed by VIL, would surely help it increasing its revenues and EBIDTA by 1-2 per cent (about 25 per cent of its revenues come from post-paid). But that is still very small to make substantial difference to its bottomline and reduce its cash shortage--until, of course, prepaid tariffs move up substantially, which analysts say is unlikely in the future. According to estimates it would require an ARPU increase of 2x if it wants to tide over the problem without any capital raise.          

But to be fair, VIL has a clear plan. Based on its own admission, it is expecting that it will garner about Rs 3,000 crore from the monestisation of its assets as well as from GST refund. And get another Rs 6,400 crore from its shareholder Vodafone plc as part of the original agreement of merger.

If that money comes, it could, of course, still sail through as it will require Rs 14,000 crore to meet the shortfall. But to do so, the company should have the ability to raise at least Rs 15,000 crore from investors, which it has promised will happen in a few weeks. To be fair, according to reports today, it has sought and received permission from the DoT for an enabling provision to raise foreign direct investment of Rs 15,000 crore. But the name of a buyer is still elusive after its announcement nine months ago to raise funds. And many doubt that with the two key shareholders Vodafone plc and A V Birla refusing to put in any more money, it’s not going to be easy.  

It would be in a happier position, of course, if the government also gives it a one-year moratorium on spectrum fee instalments (Rs 8,200 crore), becaus then it would have to raise a much lower amount from the market.  

The auditors of the company have, in its financial results, perhaps summed up VIL’s dilemma well. In the last quarterly results, it said that the assumption of a going concern is dependent on its ability to raise additional funds, refinancing and regulatory relief.