Vodafone Idea Rs 45,000-crore fundraising plan elicits mixed signals

Shares of debt-laden Vodafone Idea plummeted 15 per cent to Rs 13.50 apiece in trade in Wednesday's intraday trade

The Rs 45,000 crore refinancing of Vodafone Idea (Vi) will likely have a limited impact on the financials of the cash-strapped telco, analysts said on Wednesday.

Vi's board on Tuesday announced plans to raise up to Rs 45,000 crore in equity and debt and use the funds to expand its 4G coverage, roll out the 5G network, and boost capacity.

The fundraising plan includes a capital raise of Rs 20,000 crore through a mix of equity and equity-linked instruments by bringing in an external investor as early as next quarter.

Shares of debt-laden Vi, however, plummeted 14 per cent to touch Rs 13.65 apiece on Wednesday as most analysts maintained a 'reduce' rating on the stock given the ambiguity over the contours of the fundraising plan.

The stock hit an intraday low of Rs 13.50 apiece, sinking 15 per cent.

Approximately, 1.81 billion Vi shares changed hands at the NSE and BSE on Wednesday. 

ALSO READ: CHECK VODAFONE IDEA'S STOCK PRICE HERE

By comparison, the S&P BSE Sensex settled 1.08 per cent lower, and the S&P BSE telecommunications index fell 1.92 per cent.

Analysts believe the fundraising plan is, operationally, a step in the right direction as it will enable Vi to improve its 4G services, catch up with peers on the 5G roll out, arrest the subscribers' decline, and make meaningful Ebitda to service the debt obligations.

The amount, however, is too minuscule to have any meaningful impact, they said.

"We view this fundraising will have a limited impact on Vi's financials — saddled with over Rs 2.5 trillion of debt. It has been consistently losing subscribers and is significantly behind its peers in terms of 5G roll out. Both Bharti and Jio have already rolled out 5G in 5,000-plus cities and towns, and there is an urgent need for the company to incur capex for the 5G roll out and upgrade the 4G network. The company needs to improve both its operational and financial metrics, to withstand competition," analysts at Nuvama Institutional Equities said.

The brokerage retained 'reduce' call on the stock with a 12-month target price of Rs 7.

Vi reported a net loss of Rs 6,985 crore in the December quarter, a 12.5 per cent decrease from Rs 7,990 crore in the corresponding quarter of the previous financial year.

On a sequential basis, the firm's net loss had reduced 20 per cent, down from Rs 8,737 crore in the preceding quarter. However, the telco's finance costs increased to Rs 6,493 crore, up from Rs 6,284 crore in the same quarter of the previous year.

The four-year spectrum moratorium will end in October 2025, and an adjusted gross revenue (AGR) moratorium in March 2026, leading to a combined annual installment of Rs 43,000 crore versus the likely FY24 Ebitda of Rs 8,400 crore (pre-INDAS 116).

The company expects to utilise FY24 Ebitda towards either the full or partial settlement of Rs 5,400 crore debt payable till December 2024, and Indus monthly dues.

Shrinking subscriber base

The company continued to lose customers to Reliance Jio and Bharti Airtel, ending the December quarter with 4.6 million fewer subscribers. The overall subscriber base stood at 215.2 million, as of December last year. 

Global brokerage Nomura has also maintained 'reduce' rating on the stock with a target price of Rs 6.5 per share as it keeps repair, recovery, and roll out of 5G services on its radar post the fundraising plan. 

"A change of fortune is on the cards with the plan to raise Rs 45,000 crore. Key positive development, however, would be on-boarding of external investors," it added.

"The company still holds a debt of Rs 2.1 trillion with an annual installment of Rs 43,000 crore from FY26 onwards. This looks challenging against FY24 Ebitda. The significant amount of cash required to service debt leaves limited upside opportunities for equity holders," said analysts at Motilal Oswal Financial Services after maintaining a 'neutral' rating.