Vodafone Idea (Vi) plans to clear all outstanding vendor dues by the next fiscal year and expects all three private telcos to participate in tariff hikes after the Lok Sabha elections, the telco’s management told analysts.
The telco is also confident of increasing its ARPU further by continuously upgrading its subscribers from 2G to 4G. It expects to be 5G-ready by the end of FY26 and plans to onboard more customers by upselling premium plans.
“While the fundraise will be used primarily for capex requirements, the management stated they were confident of clearing all outstanding vendor dues by FY26 (as per Indus Towers, Vi had Rs 54 billion of past dues outstanding as of March 2024),” Citi Research said in a note seen by Moneycontrol.
Read More: Indus Towers working with Vodafone Idea to recover dues: Prachur Sah, MD
Akshay Moondra, chief executive officer of Vodafone Ideaon April 18 said the telco will clear vendor dues using internal accruals, clarifying the proceeds from the follow-on public offer are meant for growth capex.
Citi Research that Vodafone Idea’s management is optimistic about the industry taking tariff hikes sooner rather than later after the Lok Sabha elections, which it believes are imperative for the industry given significant network and spectrum spending.
“Besides tariff hikes, ARPUs should additionally benefit from upgrading 2G subs to 4G, given 42 percent of Vi’s subs are not yet on 4G vs 29 percent for Bharti Airtel. The management also highlighted that its share in gross subscriber additions is higher than its current customer market share, which makes it confident of being able to reverse net subscriber losses once 4G coverage expands and churn, therefore, reduces,” Citi added.
Analysts at Citi Research and Nuvama recently met with Vodafone Idea’s leadership.
Nuvama, in a separate note, said that the telco’s management views tariff hikes as a necessity for the industry, with all players making insignificant RoCEs.
“It [Vi] expects all three players to take part in tariff hikes – whenever it happens – just like they did in earlier rounds (akin to Dec-19, Dec-21). Along with that, VIL expects to increase its ARPU further by continuously upgrading its subscribers from 2G to 4G – which still form a sizeable part of its subscriber base (42 percent versus 28 percent for Bharti).”
Vodafone Idea’s management said it is hopeful of some relief from the Supreme Court, on the AGR front, given their contention is on the calculation methodology and some errors by DoT in calculating the liability.
“As the moratorium period provided by the GoI ends in Sep25, VIL shall need to make payments of INR290bn/INR430bn in Mar-26/Mar-27. Management is hopeful of addressing the same via internal accruals or part conversion to equity for GoI,” Nuvama said.
The telco’s management told analysts that it views its successful FPO to be an enabler of a turnaround in its fortunes. This equity capital and the proposed debt raise of Rs 250 billion will enable it to upgrade its network and arrest the continuous subscriber loss that it has been seeing for the last 23 quarters.
“It [Vi management] expects the upgradation capex to be similar to what peers like Bharti have done over the last three years. It also highlighted that the capex would enable it to provide seamless services to subscribers, where they did not have service before – and upgrade the quality, where the service was inferior to its competitors,” Nuvama said.
Vodafone Idea has told analysts that capex related to software upgrades is expected to be completed within a couple of quarters. It said that initial capex related to infrastructure (tower + devices) is likely to be completed within six to eight quarters while overall capex will be spread over the next three years.
The telco further informed that 4G-related capex is on track and VIL is working towards getting more area under coverage where the network is highly fluctuating.
Read More: Ericsson, Nokia seek to replace Chinese rivals as Vodafone Idea upgrades 4G network
Nuvama said that Vodafone Idea needs three events to play out to
survive – capital infusion, liabilities waiver and tariff hikes. "With this
capital raise, it has achieved one and enabled another. We believe VIL
is on its way to a ‘going-concern’ now – though still not completely out
of woods."
Citi separately said that completion of the long-delayed fundraise firmly puts to rest existential concerns and puts Vodafone Idea on the recovery path by enabling it to reinvest in the network and catch up with peers.
"Several pieces, however, still need to fall into place, starting with
(multiple) tariff hikes & arresting the subscriber decline, and ideally culminating in (some form of) debt relief," it said.
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