MUMBAI: Vodafone Idea MD Ravinder Takkar said that the fund infusion by promoters, the government reform package, return of bank guarantees and tariff hikes are being perceived positively by the lender and investor community and the telco remains in active talks for funds.
In an earnings call with analysts Thursday, Takkar also said that 5G pricing will depend on the evolution and adoption of 5G use cases. But he does see it being priced at a premium to 4G with the caveat that it will require higher data bundling given the expected increase in data consumption over 5G.
The comments came with analysts raising concerns over the telco’s ability to protect its market share in light of reducing capex towards expanding its current 4G network. They also questioned the ability of the telco to roll out meaningful 5G services, with stronger peers Bharti Airtel and Reliance Jio poised to roll out their networks shortly.
Takkar told analysts that the telco has made strategic spectrum buys in the recently concluded spectrum auction, with focus on 17 priority circles. “We have bought mid-band spectrum in our 17 priority circles. The bulk of our capex will go to these priority circles in the future as well.”
He added that the quantum of mid-band spectrum acquired is enough for the telco to service the 5G user base for now. It has acquired 50 MHz of 3.3 GHz airwaves in the 17 focus circles. Its total purchase in the auction was 6228.4 MHz of spectrum worth Rs 18, 799 crore.
But Goldman Sachs, in a report, warned about Vi’s cash position and pointed out that it will struggle to protect market share.
“With Vi’s current cash EBITDA run-rate (Rs 8, 400 crore) insufficient to meaningfully increase capex, large upcoming debt repayments (around Rs 7000 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.
It added that without a capital raise or tariff hike, Vodafone Idea may have a cash shortfall of Rs3700 crore by June, 2023.
Takkar said that another round of tariff hikes is possible in the industry, and that the telco would be happy to take lead in implementing the next round.
But the management did not give a firm update on the fund-raising exercise, save that the talks are ongoing. The telco has also included its 5G rollout plans in its fund-raising discussions.
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.
“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.
But Takkar downplayed the threat of market share losses.
“The 5G device penetration is at around 5% currently and will increase gradually. So we will be able to service the 5G base with the spectrum we have,” Takkar said. While he did not give any timeline for the rollout of the telco’s 5G proposition, he said that it will use the 3.3 GHz band over the non-standalone (NSA) mode to launch its 5G network.
The NSA mode refers to a network architecture where the 5G layer is built on an existing 4G network layer. “From a Capex utilisation point of view, the NSA is more efficient,” Takkar said.
The company’s stock closed down 3.8% at Rs8.76 on Thursday on the BSE, the day after it announced quarterly results. 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.
The company may also look at refinancing of bank loans now that the Department of Telecommunications has returned bank guarantees worth Rs 17, 000 crore.
“The debt we have to repay by March 31, 2023 is Rs 5, 000 crore and the bank guarantees returned by the DoT amount to Rs 17, 000 crore. These are the basis for funding discussions with banks,” said Akshaya Moondra, chief financial officer.
While there was no update on deals with network equipment companies, the telco confirmed that it has closed negotiations with Indus Towers for sites due for renewals in FY23. “The revised lower pricing is applicable from April 2022,” Moondra said.