Shares of debt-ridden Vodafone Idea surged by more than 11% on Monday, following the announcement of a major deal to secure telecom equipment for its upcoming 4G and 5G network expansion.
The telecom operator inked agreements worth $3.6 billion (Rs 30,000 crore) with Nokia, Ericsson, and Samsung, marking a critical step in its transformative three-year capital expenditure plan.
The announcement comes as Vodafone Idea aims to expand its 4G coverage from 1.03 billion to 1.2 billion people and roll out 5G services in key markets, with a projected total capital investment of $6.6 billion (Rs 550 billion).
The company made this disclosure in a stock exchange filing on September 22, noting that its capex programme also focuses on expanding capacity in line with increasing data consumption.
The surge in share price follows VI’s sharp 20% fall on Thursday after the Supreme Court dismissed the company’s curative petition, which sought a re-computation of Adjusted Gross Revenue (AGR) dues.
Vodafone Idea’s financial performance shows improvement
Following the deal announcement, Vodafone Idea’s stock price rose by 11.46% to Rs 11.67 on the Bombay Stock Exchange (BSE).
The company emphasized that this partnership with Nokia, Ericsson, and Samsung would enable a smooth transition into the 5G era.
“Vodafone Idea has concluded a mega $3.6 billion (Rs 30,000 crore) deal with Nokia, Ericsson, and Samsung for the supply of network equipment over a period of three years,” the company stated.
The agreements mark the beginning of a new chapter in Vodafone Idea’s journey to restore its competitiveness in India’s telecom market.
Akshaya Moondra, CEO of Vodafone Idea, remarked,
We are committed to investing in emerging network technologies to provide a best-in-class experience to our customers. We have kickstarted the investment cycle. We are on our journey of VIL 2.0 and from hereon, VIL will stage a smart turnaround to effectively participate in the industry growth opportunities.
Ongoing financial restructuring and capex initiatives
Vodafone Idea’s $3.6 billion telecom equipment deal is part of broader efforts to revitalize its operations, which include a series of quick-win capital expenditures following a recent equity raise of ₹240 billion and an additional ₹35 billion spectrum acquisition in June 2024.
The company revealed that these short-term capex activities have already led to a 15% boost in network capacity, while increasing population coverage by 16 million as of September 2024.
“The capex is currently being funded out of the equity raise,” Vodafone Idea said in its stock exchange filing.
It added that the firm is in advanced discussions with both existing and new lenders to secure an additional ₹250 billion of funded and ₹100 billion of non-fund-based facilities for its long-term capital expenditure plans.
Setbacks from Supreme Court ruling on AGR dues
Despite the positive market response, Vodafone Idea’s financial challenges persist.
Last week, its shares faced heavy selling pressure following an unfavourable ruling from the Supreme Court of India, which rejected the company’s plea for a re-computation of its adjusted gross revenue (AGR) dues.
Vodafone Idea had been seeking a ₹60 billion reduction in its AGR liabilities, which currently stand at ₹700 billion.
Brokerage firm Nuvama Institutional Equities pointed out that the rejection dealt a significant blow to the company’s revival efforts.
However, it noted that the 20% stock price drop on Thursday largely priced in the impact of this incremental liability.
“Hereafter, the focus shall shift to Vodafone Idea’s progress on key operational parameters – pace of subscriber loss, tariff hike impact, and capex velocity,” the firm said, maintaining a ‘Hold’ rating on the stock with a 12-month target price of ₹11.5 apiece.
Analysts cautiously optimistic on long-term prospects
Although Vodafone Idea is burdened by significant debt, analysts remain cautiously optimistic about the company’s long-term prospects.
Hemang Khanna, Vice President and Research Analyst at Nomura, commented,
Despite its large debt burden, Vodafone Idea will be able to steadily repair and rebuild its business and partake in the robust outlook for the Indian telecom industry in the coming years, with government support.
Analysts at UBS echoed this sentiment, highlighting that while the Supreme Court’s rejection of Vodafone Idea’s AGR plea reduces the likelihood of an outright waiver, options such as debt-to-equity conversions or extended moratoriums remain on the table.
UBS maintained its ‘Buy’ rating on the stock, signaling confidence in the company’s ability to recover despite the current headwinds.
In the short term, Vodafone Idea faces significant challenges, including subscriber losses.
Data from the Telecom Regulatory Authority of India (TRAI) indicated that the company lost 1.41 million users in July.
Competitors Jio and Bharti Airtel also saw declines, while BSNL added 2.9 million subscribers during the same period.
As Vodafone Idea embarks on its ambitious 5G journey, analysts caution that limited visibility on its 5G rollout could hinder subscriber retention, potentially impacting revenue growth.
“It would take at least 25-30 years for Vodafone Idea to organically repay its obligations,” warned analysts at Macquarie, underlining the importance of government intervention and continued tariff hikes to stabilize the company’s finances.
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