Vodafone Idea shares plunged over 5 per cent on Friday after the company’s board on Thursday approved fund raising Rs 14,500 crore from its promoters – UK’s Vodafone Group, India’s Aditya Birla Group (ABG), and external investors. While the announced capital raise will provide some respite to the cash-strapped telecom company, it still remains miniscule in comparison to VIL’s debt. “Weak operational parameters and significant net debt means VIL will remain on a challenging path in the coming years and will lag Bharti and Jio,” said Kotak Securities in a note. Vodafone Idea shares were trading at Rs 10 on BSE, down 5.5 per cent intraday.
Rs 14,500 crore fundraising plan
In its meeting held on March 3, the VIL Board approved an equity infusion of up to Rs 4,500 crore by promoter entities, and fresh capital raise of up to Rs 10,000 crore. The company will issue 338 crore shares at a share price of Rs 13.3 per share on a preferential basis to promoter entities – Euro Pacific Securities and Prime Metals (Vodafone Group entities), and Oriana Investments (Aditya Birla Group entity) in order to raise up to Rs 4,500 crore. The issue price is at a premium of 10% to the floor price of Rs 12.1 per share.
According to the fundraising plan, Vodafone group entities will infuse around Rs 3,375 crore from the proceeds of its stake sale in Indus Tower, while the Aditya Birla Group entity will infuse the remaining Rs 1,125 crore. The equity issue will lead to a 12% dilution on the current equity base. VIL will further raise capital of up to Rs 10,000 crore through equity/debt instruments in one or more tranches.
Continuous fund raise needed to meet existing dues
Kotak Securities noted that recent events such as converting interest on deferred liabilities into equity – Rs 16,000 crore of equity for 35.8% equity, the stake sale by Vodafone PLC in Indus Towers, which will be infused into VIL, and announced capital raise will provide some respite to Vodafone Idea. However, the telco has a long and arduous path ahead for it to truly make it out of the woods.
“VIL still needs to continue to raise significant capital to repay existing dues as its total net debt as of 9MFY22 stood at Rs 1.97 tn . It is yet to be seen if any external strategic investors decide to participate in VIL’s upcoming Rs 100 bn capital raise given the underlying challenges that the company faces,” the brokerage said.
Brokerage firm Motilal Oswal Financial Services said the move to raise funds is on expected lines as VIL could use the proceeds to clear its payables to Indus Tower along with some NCD repayments. VIL had NCD repayments of Rs 6,400 crore due between Dec’21 and Feb’22, which has mostly been met. Its next repayment is due in September 2023.
The company has an annualized EBITDA of Rs 65 bn (3QFY22), which is sufficient to undergo maintenance capex. However, the same remains 25% lower than that for Bharti/RJio, despite their higher scale/capacity. Further arrest of market share loss, which continued until 3QFY22, remains key,” the brokerage said.
Vodafone stock rating
Kotak Securities retained “RS” (Rating Suspended) stance on Vodafone Idea stock given lack of value creation and further potential large dilution expected from likely equity conversion on the deferment of AGR dues and spectrum liabilities of Rs 92,000 crore. “VIL may find it difficult to reverse loss of subscribers as it will remain behind Bharti and Jio on pan-India network capabilities (4G/5G) and service offerings (subsidized handsets, bundled plans, etc.),” the brokerage said. Meanwhile, Motilal Oswal has a ‘Neutral’ rating on the stock with a target price of Rs 9.8 per share, implying over 10% downside.
