Vodafone idea share price: Beyond fundraising, tariff hike-led ARPU improvement must for VIL: Report

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NEW DELHI: Vodafone Idea will need a rise in ARPU to meet its obligations in the long run, and without undertaking tariff hike, its cash from current fundraising will sustain operations till the end of the financial year 2022-23, according to a report. Tariff hike is imminent to fund Vodafone Idea’s financial obligations and capex (capital expenditure) plans, Axis Capital has said in its latest report.

“We think that despite the fund raise, Vi (Vodafone Idea) will require ARPU (average revenue per user) increase to meet its cash flow obligations in the long run,” it said and added that in absence of tariff hike, cash from current fund raise will sustain operations till end of FY23.

Axis Capital, in its report, further estimated that Vodafone Idea will need to raise its tariff by steep 85 per cent by the end of 2022-23 to continue as a going concern.

Vodafone Idea and peers need to take tariff hike sooner for cash from the current fund raise to be effectively used for deleveraging and improving the sustainability of its operation.

“We see possibility of Vi staying as a going concern post fund raise if government and the company take steps to ensure its viability, including affecting tariff hike and increase in ARPU.

“Without the tariff hike/ increase in ARPU, it will be forced to cut its capex, hurting its network quality and marketing expense, making it hard to retain the market share,” the report said.

While Bharti Airtel is in a position to make payment for AGR (adjusted gross revenue) dues, it favours tariff hike to increase cash flow for debt servicing as well as for capex to make its network 5G-ready, it said.

It cited Bharti Airtel Chairman Sunil Mittal’s past stance that ARPU at the current level is unsustainable and needs to improve to Rs 200 in the near term and Rs 300 over longer term for the industry to keep investing in newer technology trend and service quality.

After the recent stake sale, Reliance Jio has managed to reduce debt and the street believes that the management has no inherent need to raise tariff, as near-term financial liabilities like AGR dues are fully paid.

“However, the company has supported floor pricing,” it said.

Market research firm CLSA also said Vodafone Idea faces “enormous” AGR and spectrum burdens, and over and above the planned fundraising, it will need to raise APRU, driven by tariffs hikes.

“However, even after fundraising, Vodafone Idea’s cashflow situation will be tight and may hinder network investments unless ARPU, led by tariff hikes, jumps to Rs 250,” the CLSA report said.

Vodafone Idea announced fundraising of Rs 25,000 crore, of which equity will likely be Rs 15,000 crore. Also, Vodafone Idea has opted to sell its 11.15 per cent stake in Indus Towers for Rs 4,000 crore of cash and is looking at monetisation of owned fibre and data centre assets.

The CLSA report observed that apart from the AGR burden, where staggered payments over 10 years have been allowed to telcos, Vodafone Idea has Rs 87,600 crore of spectrum liabilities with a 2-year moratorium on interest and principal payments.

“Hence, while in FY21/22 Vodafone Idea has Rs 58/66 billion (Rs 5,800 crore/Rs 6,600 crore) of AGR EMI, annual payments jump to Rs 226/$3 billion (Rs 22,600 crore) in FY23CL,” it said.

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