5G tech, new equity investors to be Vodafone Idea's calling card

Valuation gets a leg-up after bailout package

Vodafone Idea (Vi), a joint venture between Aditya Birla Group and Vodafone Group, will continue to scout for new equity investors and invest in new technologies, including in fifth-generation-based technology, after the central government’s bailout package.

The loss-making company will be saving up to Rs 23,000 crore per annum to help it tide over its immediate cash-flow crisis. “It is a big relief to both promoters that the company will not face bankruptcy as was the case before the package,” said a source close to Vi. 

The promoters will look at all options to ensure the company remains a going concern, added the source.

Aditya Birla group did not comment.

With the valuation of the company improving due to the government package, coupled with rising tariffs, the promoters are optimistic that a new investor will be roped in within the next four years. As of now, Aditya Birla Group owns 27 per cent stake in Vi, while Vodafone owns 44 per cent stake in the company.

The company’s shares closed 26 per cent up to Rs 11.25 a share on Thursday, giving it a total market valuation of Rs 32,327 crore.

Soon after the Supreme Court judgment, which ordered the company to pay Rs 61,000 crore (as on March) as adjusted gross revenue (AGR) dues, Vi had come out with a plan to raise Rs 25,000 crore as debt and equity. But the company failed to attract any equity investor since investors wanted more clarity on the AGR issue. The lenders were also reluctant to lend more money since the company’s financial metrics were deteriorating. Both promoters also refused to invest more money in the company. At the same time, the company also lost a sizeable chunk of its subscriber base to Reliance Jio and Bharti Airtel, with its subscriber base at 272 million as of June quarter, from 400 million when the merger between Vodafone and Idea Cellular took place in March 2018.

After several representations from Aditya Birla Group Chairman Kumar Mangalam Birla, the government announced a bailout for Vi. It gave a moratorium on AGR and spectrum dues to defer Vi’s annual payments by four years. The government said the interest cost on deferred amounts can be paid through equity, and annual licence fees/spectrum usage charges of Rs 4,000 crore can be funded at the bank's marginal cost of funds-based lending rate plus 2 per cent without any penalty, thereby creating additional funding headroom.

Analysts said with an overall deferred amount of Rs 92,000 crore, which can be optionally converted into equity by the government at a later date, it may convert Vi into a government-owned entity in the long run.

“These measures may allow Vi to continue as a going concern. But the absence of relief on the balance sheet or profit and loss may rule out any meaningful equity value creation,” said an analyst with Kotak Institutional Equities, in a report to its clients.

“Moreover, Vi may continue to lose subscribers since it remains behind Airtel and Jio on network capabilities (4G/5G) and service offerings (subsidised handsets, bundled plans, etc.). Our calculations suggest that Vi may require an average revenue per user (ARPU) of Rs 300-500 at different levels of subscriber base, to manage its liabilities, even after converting the deferred amount into equity after four years of moratorium,” it said.

At present, its ARPUs are hovering around Rs 117 per customer.