MUMBAI: Loss-making Vodafone Idea may not be able to meaningfully rollout its 5G network any time soon given its cash constraints, despite picking up 6228 MHz of airwaves in the recent 5G auction, fuelling fears that the telco may continue to cede market share to rivals, say analysts.
“With Vi’s current cash EBITDA run-rate (INR84 crore) insufficient to meaningfully increase capex, large upcoming debt repayments (around INR7000 crore) and also delays in external fund raise, we think Vi’s 5G rollouts would remain constrained in the near term. Impending 5G rollouts by peers could lead to accelerated market share losses for Vi,” said Japanese brokerage firm Nomura in its report, analysing Vi’s fiscal first quarter numbers.
Goldman Sachs added that the company’s cash flows are not enough to meet all its payment obligations towards capex, spectrum, and debt repayment. “Without a capital raise or tariff hike, we estimate Vodafone Idea to have a cash shortfall of Rs3700 crore by June, 2023.”
The telco saw net loss for the fiscal first quarter widen to Rs 7,296 crore sequentially from Rs 6,544.9 crore on the back of higher finance and operating costs amid continued subscriber losses. EBITDA was down 7% sequentially at Rs 4,330 crore, due to higher operating costs.
Cash and cash equivalents were Rs 860 crore and net debt stood at Rs 1,98, 220 crore. Total gross debt (excluding lease liabilities and including interest accrued but not due) as of June 30 was at Rs 1,99, 080 crore, comprising of liabilities due to the government and debt from banks and financial institutions.
Vi’s capex fell sequentially to Rs 840 crore in 1QFY23 (8% of sales; Rs 1,210 crore in 4Q), and continues to significantly lag that of peers.
The company’s stock was down 4.8% at Rs8.67 on Thursday on the BSE, the day after it announced quarterly results.
The company has been trying to raise Rs20,000 crore via a mix of equity and debt for a long time, but that hasn’t closed till now.
“We believe that VIL would need a meaningful fund raise, strong structural improvement and periodic tariff hikes to meet cash outflows post the end of four-year moratorium,” said Credit Suisse analysts in a report.
The company successfully bid for 6228.4 MHz of spectrum worth Rs 18, 799 crore in the auction. The telco has opted to pay the sum over the next 20 years in equal annual instalments at Rs 1680 crore a year, adding to the annual payouts it needs to fulfill.
However, with no funds to infuse into capex, the telco’s participation in a meaningful 5G rollout is under threat. Meanwhile, peers Reliance Jio and Bharti Airtel have indicated plans to rollout out their 5G services in the coming months, if not weeks. Delay in moving to a 5G network will further erode the telco’s market share say analysts.
“While Vodafone Idea has bought 5G spectrum in 16-17 service areas in the recent auction, we remain uncertain about the company’s ability to make meaningful 5G roll-outs without increasing capex,” said analysts from Goldman Sachs.
In such a scenario, Vodafone Idea’s market share erosion could potentially accelerate, especially in the postpaid and high-end prepaid smartphone segment, the report added.