Vodafone Idea – Can it go off the grid?

Experts said investors should ideally stay away if they are not already invested in the company and people who are already invested should revisit their original investment thesis.

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Vodafone Idea Ltd.’s problems have compounded with Indus Towers Ltd., the country’s largest mobile tower company, asking the telecom giant to clear 80 percent of its outstanding dues immediately or face the risk of being taken off the grid.

In addition, Indus has asked VIL to pay monthly dues on time from November for business continuity.

VIL is said to owe mobile tower companies Rs 9,000 crore, of which almost 70 percent is due to Indus and the rest to American Tower Company.

Independent directors of Indus had expressed displeasure over VIL’s surging outstanding dues during a board meeting on September 29.

No signal

However, experts suggest the possibility of Indus taking VIL off the grid is very remote and not likely. If the company does go off the grid for even a week, it will lose subscribers, making it all the more difficult to survive.

“It is best for both the parties to reach a consensus and even the government/regulator may likely step in formally or informally to settle this,” said Vikas Gupta, CEO of  OmniScience Capital.

VIL is a joint venture of the Aditya Birla Group and the Vodafone Group. The company got a lifeline last year after the government offered a relief package to the sector. VIL has more than 240 million subscribers and annual revenue of almost Rs 40,000 crore.

“It would not make sense for anyone to disrupt this permanently,” added Gupta.

VIL also constitutes about 35 percent of Indus’s tower tenancy and it would not make good business sense for Indus either to pull the plug on VIL.

The time may be right for some hard negotiations across the table for both the entities. Some experts said Indus was forced to do this to bring VIL to the negotiating table.

“There is a big possibility that both the companies might agree on some lump-sum payment for the time being, which will be lower than the total dues outstanding, and the balance outstanding to be cleared in a phased manner,” said Gupta.

This will give VIL some breathing space and it can then start regular monthly payments from November.

One analyst who declined to be identified said both Indus and VIL had already agreed that VIL would make staggered payments till December and then make payments in accelerated mode from January. According to this plan, VIL was supposed to clear all its old dues by the end of July 2023.

The analyst said the recent letter could be some kind of tactic by Indus to ensure it gets at least some money from VIL in the near term. VIL’s annual operating cashflow is about Rs 15,000 crore, which translates to Rs 3,000 crore to Rs 4,000 crore quarterly.

“VIL should be able to handle this through some hard negotiations and come to a settlement which is sustainable for both parties in the long-term,” Gupta said.

It is likely the company will survive and subscribers will not be inconvenienced.

VIL fundraising

VIL has been trying to raise funds for some time without success. Experts don’t see any chance of raising funds by further diluting equity at the moment. The agreement with the Government of India does not entail any new money coming into the business as it only involves conversion of adjusted gross revenue dues into equity.

Moreover, according to reports, the government will acquire the equity only when the stock price is at Rs 10. VIL shares have not breached the Rs 10 level since April 2022.

Government to acquire Vodafone Idea stake after share firms up at Rs 10

Any further delay in raising of funds on the part of VIL will hamper its plans for the rollout of 5G services. According to experts, 5G adoption will start with the high-usage and post-paid customers with an ARPU (average revenue per user) of more than Rs 400. However, they will be the first to switch to other service providers if there is any delay in VIL’s 5G rollout, further denting its recovery prospects.

Experts said VIL will remain the No. 3 Indian telecom operator, but its market share will shrink significantly. As a result, it might even become a non-existent player unless there is a huge strategic development for the company.

Advice for Investors

There’s been a lot of trading in VIL shares since the start of September but experts said investors should ideally stay away if they are not already invested in the company.

“People who are already invested should revisit their original investment thesis and analyse whether their original thesis still holds,” said Gupta.

Investors who don’t know much should ideally just wait for things to settle down and then take a decision.

Experts suggest that even the stock of Indus is better avoided under the current scenario when there is not much clarity on its cashflows and its dividends are getting impacted.

Disclaimer: The views and investment tips of investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.