NEW DELHI: Vodafone Idea Ltd (VIL) shares fell sharply on Wednesday, a day after the telecom company’s board approved fundraising of up to Rs 45,000 crore through equity and debt. VIL crashed more than 12 per cent intraday to hit an intraday low of Rs 13.60 apiece on the NSE. On Tuesday, the scrip had settled 4.45% lower at Rs 16.10 apiece.
Despite the big fundraising plan, brokerages feel that this might not be enough to rescue the telecom company as it has a total debt of Rs 2.5 lakh crore. The telco is already late on the 5G bus and has been conceding market share to Jio and Airtel.
Nomura retained its ‘reduce’ call on the stock, with a target price of Rs 6.5 apiece. The brokerage said that in the near term, a significant fund-raise will be a material positive and will enable the company to cover upcoming dues, commence its 5G rollout, and improve its operational performance.
It, however, added that VIL will not be fully out of the woods. “Repair, recovery, and rollout of 5G will take time to fructify and will be crucial to an improvement in its outlook," Nomura said.
CLSA also maintained a 'sell' call on the Vodafone Idea share with a target of Rs 5. Nuvama Institutional Equities has set a target price of Rs 7 for the stock and has given it a ‘reduce’ rating.
Nuvama said that given the company’s overall debt of Rs 2.5 lakh crore (including bank debt of Rs 4,500 crore and Spectrum/ AGR dues of Rs 2.1 lakh crore), the equity raise is likely to have limited financial impact.
“Operationally, this fund-raise is surely a step in the right direction. This will enable VIL to improve its 4G services and catch up (to some extent) with peers on 5G rollout, to be able to arrest the subscribers' decline and make meaningful EBITDA to be able to service the debt obligations. Financially, however, the fund-raise size is too small, to have any meaningful impact," said Nuvama.
Analyst at Motilal Oswal said, “The significant amount of cash required to service debt leaves limited upside opportunities for equity holders, even with the potential operating leverage benefits from any increase in ARPU. Given the current low EBITDA, servicing the debt without external funding will be challenging.”
Vodafone Idea board on Tuesday approved a fund-raise of up to Rs 20,000 crore through a combination of equity and equity-linked instruments. Overall, Vodafone Idea plans to raise around Rs 45,000 crore through a mix of equity and debt, the company said.
The company will call for a meeting of its shareholders on April 2, 2024, and post-shareholders’ approval it expects to complete the equity fund raise in the coming quarter. The promoters will also participate in the proposed equity raise, as committed earlier.
“The equity and debt fundraising will enable the company to make investments towards significant expansion of 4G coverage, 5G network rollout and capacity expansion,” VIL said in a statement.