Vi Stress: Are We Staring At The End?

Vodafone Idea's struggles with capital are now reaching the terminal stages.

<div class="paragraphs"><p>A Vodafone Idea store. (Source: BQ Prime)</p></div>
A Vodafone Idea store. (Source: BQ Prime)

Three arrows need to be shot at the same time, but all the archers are waiting and looking at the others to see who shoots first, explains a senior private sector banker speaking about the situation at Vodafone Idea Ltd.

A little over a year after the government extended a helping hand, one of India's storied telecom operators is staring at a bleak future, as it is slowly running out of cash. According to three bankers, who spoke on the condition of anonymity, the going concern status of Vodafone Idea is seriously under question. Its operations may see severe disruptions in three to six months, if the current situation prevails, the bankers said.

Take the firm's financial position, for example.

As on Sept. 30, the company reported a quarterly loss of Rs 7,596 crore, compared with Rs 7,142 crore a year ago. Revenue from operations rose 12.85% year-on-year to Rs 10,610.5 crore.

According to the data released by Vodafone Idea, the company had outstanding liabilities of Rs 2.2 lakh crore at the end of the second quarter, which includes over Rs 59,000 crore worth of adjusted gross revenue dues to the Department of Telecom. Outstanding debt worth Rs 9,569.7 crore is due to be repaid by Sept. 30, 2023.

The company's net worth stood at a negative Rs 76,417 crore at the end of the July-September quarter.

The group's ability to continue as a going concern is dependent on raising additional funds as required, successful negotiations with lenders and vendors for continued support and generation of cash flow from operations that it needs to settle its liabilities as they fall due. As of date, the group has met all its debt obligations.
Vodafone Idea notes to accounts in July-September 2022 quarter financial results

The troubles are prevalent even in the telco's subscriber base. As of Oct. 30, 2022, Vodafone Idea's outstanding active wireless and wireline subscribers stood at 24.63 crore, down 8.6% year-on-year. In comparison, Jio's subscriber base fell 0.5% and Bharti Airtel's base rose 3.4% in the same period.

The Three Arrows

Even as business concerns persist, in the Vodafone Idea stress, there are three major threads running parallelly.

The first of these is the capital needs to be infused either by promoters Aditya Birla Group and Vodafone Group Plc., or through other investors. Since January 2022, the company has received only Rs 4,900 crore from the promoters, according to data available on exchanges.

After taking charge as the company's CEO in July last year, Akshaya Moondra had told the press that Vodafone Idea was in discussions with various potential investors for a fund raise. However, that has not materialised.

According to the first of the three bankers quoted above, the promoters too are mum about any further capital infusion.

The second arrow in this case is that of the lenders to Vodafone Idea providing further debt. Earlier this month, the telecom company had sent a proposal to lenders led by State Bank of India for emergency funds worth Rs 7,000 crore. These funds were to be used to repay a part of the dues owed to Indus Towers, according to the three bankers quoted above.

However, lenders have already rejected that proposal, stating that they would not be comfortable extending funds in the absence of any equity infusion. According to an estimate by lenders, the company needs Rs 40,000-50,000 crore worth of funds to continue to function, which would mean equity infusion worth Rs 10,000-12,000 crore.

The last arrow in discussion is the government's role in Vodafone Idea. In January 2021, the government had agreed to convert its outstanding dues worth around Rs 16,000 crore to 35.8% equity stake in Vodafone Idea. This conversion is yet to be concluded. Government sources have previously said that they will conclude the acquisition after the Vodafone Idea stock stabilises at Rs 10 per share or higher.

Telecom Minister Ashwini Vaishnaw, however, later clarified that the capital infusion into the company was a key issue ahead of the government's conversion of debt.

The bigger question here is the fact that the government converting dues to equity will only serve as reducing current dues. It does not address the lack of working capital the company has, which is becoming scarce, the second banker quoted above said.

Unless the promoters show willingness to invest, the lenders and the government are likely to maintain status quo, this banker added.

Here's a timeline of Vodafone Idea's journey so far:

Vi Stress: Are We Staring At The End?