Vodafone Idea (Vi) is facing a severe funding shortfall in FY26 and FY27, which could require a steep tariff hike of 85% and 122%, respectively, according to a research note by brokerage firm Emkay (via ET Telecom). The telco may need to convert instalments into equity by the government of India, which would still leave a shortfall of Rs 135bn in FY26 and Rs 190bn in FY27, requiring a tariff hike of 45% and 64%, respectively. The cash crunch for Vi is limiting its ability to fund capex, which is worsening the telco's position in the market.
Funding Shortfall for Vi
Vi's net debt stood at Rs 2,227 billion at the end of Q3 FY23, which includes deferred spectrum payment obligations of Rs 1,398 billion and AGR liability of Rs 699 billion. The telco's first payment towards the spectrum dues will start from October 2025, and for AGR dues from March 2026, post-moratorium on payments.
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Postpaid and Broadband Segments to be the Next Battleground
Postpaid and broadband segments will emerge as the next battleground for India's top telecom operators, Reliance Jio and Bharti Airtel, with each telco launching new plans to gain a greater market share at the expense of Vodafone Idea. Jio has recently launched a new home broadband plan, priced at Rs 198/month, which is competitively priced (Airtel's lowest plan is Rs 499/month) and is expected to help the telco improve its dominance in market share (24% in December 2022) in home broadband.
“RJio intends to acquire market dominance in the Rs214bn Home broadband market as well as make inroads into the Rs157bn DTH market and the Rs181bn cable market, with the new Rs199/month package (current market size, as per our estimate). Moreover, the segment has a long runway for growth, given that current fixed broadband penetration in India is only ~2%,” Emkay said.
Emkay said that Bharti Airtel and RJio capturing 40% each of Vi's revenue with a 60% probability of a duopoly will translate into an option value of Rs 90 per share for Bharti Airtel and Rs 80 per share for RIL. With RJio and Bharti Airtel intent on garnering overall market share, Vi may see collateral damage with a need for a steep tariff hike of 85%/122% by FY26/FY27 to meet its cash shortfall. There is an increasing risk of a duopoly, the brokerage firm added.