Shares of Vodafone Idea (VI) saw a remarkable 9% surge to reach Rs 17.74 on the BSE during Friday’s intra-day trading session, following the telecom giant’s announcement regarding an upcoming board meeting on February 27 to deliberate on fundraising proposals. The potential fundraising avenues include equity or debt instruments.
VI’s stock price has exhibited a noteworthy 30% surge over the past three weeks, showcasing considerable investor interest. Notably, the stock has witnessed an impressive growth of 212% from its 52-week low of Rs 5.70 recorded on March 31, 2023.
Trading activity surrounding VI has been significant, with a substantial 677 million equity shares exchanged on the NSE and BSE combined by 10:12 AM, underlining the market’s active participation in the stock.
Meanwhile, Indus Towers witnessed a robust rally of 5%, reaching Rs 237.20, in contrast to the S&P BSE Sensex’s marginal 0.18% increase, buoyed by optimistic expectations regarding revenue visibility.
In an exchange filing, Vodafone Idea (VI) disclosed that its board of directors will thoroughly assess and contemplate all proposals pertaining to fundraising activities, which may include “raising of funds in one or more tranches by way of a rights issue, further public offer, private placement including preferential allotment, qualified institutions placement, or through any other permissible mode and/or combination.”
VI managed to narrow its net loss to Rs 6,986 crore for the December 2023 quarter (Q3FY24), supported by a one-time exceptional gain of Rs 755.5 crore, while also witnessing an improvement in the average revenue per subscriber. This progress comes as a positive sign for the struggling telecom company, considering that VIL’s net loss had amounted to Rs 7,990 crore in the corresponding period of the previous year.
By the end of Q3FY24, Vodafone Idea’s bank debt totaled Rs 6,050 crore, excluding Rs 1,600 crore of optionally convertible debentures (OCD) owed to American Tower Corp (ATC). Over the next year, the company faces a payment obligation of approximately Rs 3,200 crore in bank debt.
Analysts at Emkay Global Financial Services highlighted that an infusion of Rs 2,000 crore in financial support from the promoters, when received, will alleviate cash constraints for VI until H1FY26. This support is particularly significant as it reduces the company’s bank debt obligations.
Looking ahead, VI is projected to face substantial financial commitments, including a payment of approximately Rs 30,000 crore in H2FY26 and around Rs 45,000 crore from FY27 onwards, earmarked for spectrum/AGR dues and capital expenditure. Meeting these obligations may necessitate tariff hikes and further equity conversion of Rs 17,400 crore annually by the Government of India, starting from FY27.
VI may need to increase its average revenue per user (ARPU) from Rs 145 to approximately Rs 230 by the end of FY27, a target deemed achievable by analysts. Factors contributing to this potential increase include an anticipated round of tariff hikes following elections, VI’s expected conversion of around 9.5 crore 2G users to 4G, and a reduction in validity for the Rs 99 minimum recharge pack (from 28 days to 15) in 16 circles. The brokerage firm emphasizes that clarity on fundraising and tariff hikes will be crucial positive triggers for VI’s performance.
Meanwhile, analysts at another brokerage firm note that Indus Towers is experiencing demand for rural expansion and urban densification, particularly from Bharti Airtel. Management anticipates a robust order book for the forthcoming quarters. They also highlight that the Rs 2,000 crore financial support from VI’s promoter, once received, will alleviate cash constraints for VI until H1FY26E, as VI’s bank debt obligations decrease post-Q4FY24. This financial support can potentially enhance revenue visibility for Indus Towers.