Brokerage Kotak Institutional Equities predicts that Vodafone Idea's recent fundraising may boost the short-term prospects for the beleaguered telecom service provider.
They don't, however, see any significant gain in market share gains or a relief from potential large equity dilution. They warn that the Government of India's stake could surpass 80 percent, limiting the potential gains for minority investors. The brokerage has suspended its coverage on the stock.
Kotak praised Vi's recent follow-on public offer as a positive albeit an overdue move, likely improving the network coverage and competitiveness. They anticipate reduced bank debt will facilitate additional funding from banks.
Vi announced a Rs 18,000-crore follow-on public offer (FPO) at Rs 10-11/share, plus Rs 2,080-crore preferential equity issuance to promoters. A 70 percent of the FPO proceeds will be spent on enhancing the 4G coverage (26k sites), capacity (40.8k sites), and 5G rollout (22k sites). Kotak predicts that improved 4G coverage will curb market share losses in the short run.
Vi's market share dropped 19 percent after merger due to insufficient network investment. Kotak anticipates Vi will improve its 4G coverage, but the 5G gap remains. Competitors may gain more from tariff hikes and customer acquisition spending, hindering Vi's market share growth against Bharti and Reliance Jio, the report added.
Vi faces a daunting Rs 2.1-lakh-crore debt to the government, with major repayments looming. Kotak adds that despite potential financial boosts from fundraising and tariff hikes, Vi's cash EBITDA may not suffice for hefty GoI dues. Options like moratorium extensions or partial waivers could ease the burden, but a complete write-off seems unlikely. Converting GoI dues into equity could lead to substantial dilution for non-GoI investors, possibly leaving GoI with a majority stake. Kotak adjusts EBITDA estimates upward for FY2025-26E due to reduced subscriber declines post-fundraising and higher ARPU.
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