According to the analysts, the telecom company Vodafone Idea or Vi will only be able to utilize around 25% of the Rs 4,500 crore fresh capital infusion by its promoters – Vodafone UK and India’s Aditya Birla Group -- for CAPEX purposes. As per the analysts, this will not be enough for the telco to compete with its rivals such as Jio and Airtel which are financially stronger. Analysts suggest that Vodafone will require much larger equity financing of about Rs 20,000 crore on its network to compete and increase its average revenue per user (ARPU) growth.
The Struggling Finances of Vi
The board of Idea on Thursday approved raising Rs 14,500 crore from its primary promoters – UK’s Vodafone Group as well as Aditya Birla Group (ABG) along with other external investors. The telecom operator is all set to raise Rs 4,500 crore which is approximately $600 million through preferential shares issued at Rs 13.30 per share to its promoters as well as related companies. Moreover, the telco has announced raising another Rs 10,000 crore via equity and debt instruments. The move comes in as Vodafone Idea has been struggling for a while now in terms of financial situations.
According to a report from ET Telecom, the investment banking firm based in Switzerland, Credit Suisse in a note said that the equity infusion is inadequate as only 25% of the Rs 4,500 crore infusion from promoters, representing ABG’s share of Rs 1,125 crore, would be available unencumbered to Vi as almost the entire infusion from Vodafone Plc will be used to clear Vi’s existing overdue balance with Indus Towers.
This view from the firm was supported by IIFL Securities according to which the sum left for Vi to invest in its network from the latest equity infusion would be only Rs 1,000-2,000 crore. IIFL stated that the telco needs to invest Rs 20,000 crore on its network in 2 years to support 200 million 4G subs.
The telecom operator has been losing its subscribers constantly and rapidly and analysts believe that Vi needs serious levels of funding quickly to bolster 4G operations across its 16 priority markets to overcome this situation as well as be a strong competitor in the upcoming 5G spectrum auctions. Although analysts also said that the promoter-level equity infusion is likely to boost Vi’s prospects of raising more capital from external investors.
