Vodafone Idea: Spectrum charges to stress balance sheet
Much depends on how much pricing power players like VIL and Bharti Airtel will be able to command given Reliance Jio’s onslaught.
Given that Vodafone Idea needs to fork out about half the telecom industry’s annual deferred spectrum payments between now and 2031, it’s not surprising that chairman KM Birla is calling on the government for some relief.
Nearly half or Rs 10,579 crore of the Rs 21,218 crore to be paid out in 2018-19 is Vodafone Idea’s share. In comparison, Bharti Airtel’s annual outgo is smaller at Rs 5,573 crore.
Indeed, 79% of Vodafone Idea’s net debt of Rs 1.13 lakh crore, is spectrum related and owed to the department of telecommunications.
The spectrum payments will leave VIL’s debt elevated for several years, at least until 2023-24, given how tariffs — both for data and voice — are expected to remain low. The cumulative Ebitda (earnings before interest, taxes depreciation and amortization) is estimated at Rs 42,700 crore till 2021-22.
Analysts at Kotak Institutional Equities (KIE) estimate a funding gap of Rs 38,000 crore, should VIL spend a cumulative Rs 50,000 crore on capex by 2020-22 and incur a cash interest cost of Rs 31,000 crore.
The VIL management plans an equity infusion is Rs 25, 000 crores, 75% of it will come from the promoters. The pickings from the sale of the 11% stake in Indus Towers should be around Rs 5,000 crore which together with the monetization of the fiber would just about be enough to meet estimated funding gap between 2HFY19-FY2022.
VIL hopes to advance the benefits from synergies by two years and save `14,000 crores.
KIE estimates a net debt of Rs 1.2 lakh crore at the end of FY2022 post an equity raise of `25,000 crore and asset sale proceeds of Rs 13,000 crore from Indus stake sale and fiber monetization.
However, analysts at Jefferies noted that despite the fundraiser, synergies and the stake sale in Indus, the company’s debt to Ebitda ratio could be a high 19 times in FY20. Peer Bharti Airtel’s net-debt-to-Ebitda at the end of the September quarter was 4.65 times.
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