Vodafone Idea Strategises 5G Rollout And Vendor Payment Clearance

Vodafone Idea (Vi) has outlined its strategic plans to clear outstanding vendor dues, boost revenue through premium 5G plans, and enhance its technological infrastructure.

The telecommunications giant aims to achieve these milestones by the next fiscal year, signalling a determined effort to revitalise its operations amid a competitive market landscape.

According to Vi's management, the company is on track to settle all vendor dues by the upcoming fiscal year, demonstrating a commitment to financial stability. Additionally, Vi anticipates collaboration among all three private telcos to implement tariff hikes following the Lok Sabha elections, which could bolster its revenue streams.

"We met with the management of Vodafone Ideal Ltd. (VIL). Management appeared upbeat about the growth prospects after the successful FPO. It spoke at length about how the company got into the stretched financial situation over the last decade and how the current FPO and other steps are likely to turn around the business," Nuvama Equities said in the report.

Vi's management expressed confidence in elevating its average revenue per user (ARPU) by transitioning subscribers from 2G to 4G services. With plans to become 5G-ready by the end of fiscal year 2026, Vi aims to attract more customers through the offering of premium 5G plans, thereby stimulating further revenue growth.

"We have long maintained that VIL needs three events to play out to survive: capital infusion, liability waivers, and tariff hikes. With this capital raise, it has achieved one and enabled another. We believe VIL is on its way to a 'going concern' now, though still not completely out of woods. We maintain estimates and reiterate 'HOLD', with an unchanged TP of INR14, valuing it at 11x FY26 EV/EBITDA," Nuvama added.

Addressing ongoing challenges related to adjusted gross revenue (AGR), Vi remains optimistic about potential relief from the Supreme Court, citing discrepancies in the calculation methodology and errors by the Department of Telecommunications (DoT). Such relief could alleviate financial burdens and pave the way for Vi's resurgence.

Vi views its recent Follow-On Public Offering (FPO) as instrumental in facilitating its turnaround efforts. The equity capital raised through the FPO, combined with a proposed debt raise of Rs 250 billion, will empower Vi to upgrade its network infrastructure and mitigate the prolonged decline in subscriber numbers.

"Management views its successful FPO-one of the largest fund raises in the history of Indian capital markets-as an enabler of a turnaround in its fortunes. This equity capital and the proposed debt raise of INR 250 billion shall enable it to upgrade its network and arrest the continuous subscriber loss that it has been seeing for the last 23 quarters," Nuvama said.

In terms of capital expenditure (capex), Vi provided insights into its strategic timeline. Software upgrades are expected to be completed within a couple of quarters, while infrastructure-related capex, including towers and devices, is projected to conclude within six to eight quarters. Overall, capex will be distributed over the next three years, aligning with Vi's long-term growth objectives.

"Management is hopeful of some relief from the Supreme Court on the AGR front, given their contentions are on the calculation methodology and some errors by DoT in calculating the liability. As the moratorium period provided by the GoI ends on September 25, VIL will need to make payments of INR290bn and INR430bn on March 26 and 27. Management is hopeful of addressing the same via internal accruals or part conversion to equity for GoI," Nuvama emphasised.

Vi remains focused on enhancing its 4G network coverage, particularly in areas experiencing connectivity challenges. By prioritising infrastructure investments and network expansion initiatives, Vi aims to fortify its position in the telecommunications market and deliver enhanced services to its customer base.

With a comprehensive strategy in place to address financial obligations, expand its technological capabilities, and bolster network infrastructure, Vodafone Idea is poised to navigate the evolving telecommunications landscape and emerge as a formidable player in the industry.

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