NEW DELHI: Vodafone Idea Limited (VIL), India’s third-largest telecom service provider, is pulling out all stops to raise funds from the market to improve its financial health.
The debt-laden telco, formed in 2018 when the UK-based Vodafone India Group merged with Indian Idea Cellular, has been bleeding with massive losses and fall in the number of subscribers, losing confidence of investors at large. After having raised about Rs 7,000 crore from promoters since 2022, the telcohas announced a follow-on public offer (FPO) of Rs 18,000 crore, the success of which would decide the fate of the company in the longer term.
After the merger of Vodafone and Idea, it became India’s largest telecom operator with a market share of 32.2% in India. However, since then, it has lost a large chunk of its market share, and as per the Telecom Regulatory Authority of India (TRAI), it now holds 18.93% market share in the wireless segment as of February 2024.
This decline can be attributed to the lack of funds, accumulated debt, and insufficient investment in network upgrades. These factors have pushed the company to the third position in the Indian telecom market, with a continuous month-on-month loss in market share. Therefore, to arrest user loss and remain competitive, VIL requires significant amount of capital. But its efforts to raise funds for the last few years failed to yield any result. Meanwhile, its cash-rich competitors, Reliance Jio and Bharti Airtel, are leaving no stone unturned in investing in their infrastructure and network expansion.
Fund raised so far
IL has been trying to raise funds since 2020, without much success. As the company was unable to pay its adjusted gross revenue (AGR) to the government, the latter converted it into equity. The company was also struggling to pay vendors such as ATC and Indus Tower. Last year, ATC has subscribed to optionally convertible debentures of Rs 1,600 crore. The company managed to raise about Rs 5,000 crore in the first half of 2022.
On February 27, 2024, the telco announced plans to raise Rs 45,000 crore via a combination of equity and debt. In an exchange filing, it stated that its board had approved a fundraising of up to Rs 20,000 crore via a combination of equity and equity-linked instruments. Additionally, it is looking to raise an additional Rs 25,000 crore through debt. Following the announcement, it raised Rs 2,075 crore by issuing preferential shares to Oriana Investments, a promoter entity within the Aditya Birla Group.
The third-largest telco has announced a follow-on public offer (FPO) of equity shares aggregating up to Rs 18,000 crore. VIL has set the FPO price between Rs 10-Rs 11 per share. The higher end of the price band Rs 11 represents a discount of 26% as against the recently approved preferential issue price to the promoter entity and a discount of about 15% compared to the last closing price. The FPO is scheduled to open on April 18 and close on April 22.
The FPO is going to be one of the biggest in the history after Yes Bank’s Rs 1,5000 crore and ONGC’s Rs 10,542 crore offer. Adani Enterprises’ Rs 20,000 crore FPO was cancelled last year. If it is fully subscribed, it will give a major boost for the company. Reports suggest the US-based investment firm GQG Partners and SBI India Mutual Fund are considering investing Rs 6,500 crore in the FPO.
Analysts remain cautious about the FPO’s success. As per Prashanth Tapse, vice president (Research) at Mehta Equities, the FPO’s performance hinges on the execution plan and industry outlook.
“From an investor’s perspective, this fundraising would lead to major equity dilution for its shareholders. Considering the near-term risks of continued losses and subscriber attrition due to lack of expansion of 4G services compared to peers like Jio and Airtel, we are not keen to advise our conservative investors to invest in the FPO. Only risky investors may consider investing in India’s telecom growth story in the long term,” said Tapse.
His views were echoed by Charu Paliwal, a telecom expert, who said the FPO is likely to attract more institutional investors than retail investors. “Though the capital infusion is a positive step and would provide some financial relief to the company, this FPO is likely to attract more institutional investors than retail investors as VIL is still a loss-making company and would require a high-risk appetite from retail investors.”
Shivani Nyati, head of wealth at Swastika Investmart, said while the fundraising could strengthen VIL’s infrastructure, the firm faces challenges on the financial front. Unlike its competitors, VIL has experienced a consistent decline in its user base. “Despite discount of 15-17%, its path to near-term revival seems uncertain. Investors should consider these factors before taking part in the FPO.”
Too little, too late?
Once a dominant force in India’s telecom sector, VIL finds itself grappling with a rapid fall in users and financial woes. Its inability to invest in network infrastructure or roll out its 5G networks due to lack of capital has led to a migration of customers to its rivals, Jio and Airtel. VIL posted net losses of Rs 29,308 crore in FY23 as against Rs 28,237 crore in the previous year. In the first nine months of FY24, it has posted net losses of Rs 23,564 crore as against Rs 22,822 crore in the same period previous year. Its is ARPU at Rs 145, lower than Jio’s Rs 182 and Airtel’s Rs 208.
By the end of October-December quarter of 2023, its gross debt (excluding lease liabilities and including interest accrued but not due) stood at about $26.36 billion, with deferred spectrum payment obligations comprising $16.91 billion, and AGR liabilities to the government at $84.61 billion. Looking ahead, it faces an obligation to pay debts amounting to Rs 5,385.4 crore by December 2024.
“If the plan gets executed well, there can be a possible return to a growth trajectory but it will still require years before it can come back with an intense competitive environment,” said Tapse.
Average Revenue per user
Date
31 Dec ’23
Rs 145
31 Mar ’23
Rs 135
31 Mar ’22
Rs 124
31 Mar ’21
Rs 107
31 Mar ’20
Rs 121
