Vodafone Idea Requires 40% Tariff Hike to Meet its Cash Flow Needs

ICICI Securities, one of the biggest broking firms and a subsidiary of ICICI Bank recently issued a report on Sunday. As per the report, Vodafone Idea needs about a 40 percent tariff hike in the subsequent 3 years to meet its cash flow requirements. The company said that the telecom operator Vodafone Idea needs a cash flow of about Rs. 320 billion to meet the postponed spectrum equated monthly installment [EMI] payment, capital expenditure [Capex], AGR dues, and the interest on bank loans.

ICICI Securities also mentioned that Vodafone Idea must increase its average revenue per user [ARPU] to Rs. 79 ‘to remain a going concern’ changing to a 70 percent hike in ARPU. The leading firm also said that the operator will gain from a rise in 4G subscribers. Still, it would be lower than Bharti Airtel. In the report, the company further stated that ‘a lot of cash burn can be funded from capital infusion’. However, Vodafone Idea would need a more than 40 percent hike in tariff in the subsequent 3 years.

Vodafone Idea Requires 40% Tariff Hike
Vodafone Idea Requires 40% Tariff Hike

The latest report issued by the broking firm pointed out that Airtel is the company’s preferable ‘high-conviction’ stock in the telecom industry. It said that the company is ‘notwithstanding the rising risk from AGR liability and sooner than expected 5G rollout.’ The AGR case has been still going on in the apex court with most operators asking a 15-year timeframe for the payment of the due amount.

The report further reads, ‘Ongoing AGR hearing in SC indicates [a] likely rising risk of liabilities from the spectrum traded from Videocon and Aircel. The hearing has not concluded and we don’t want to take any view.’ The company said that the AGR liability of Videocon is 14 billion while the liability of Airtel is Rs. 124 billion. The worst-case liability scenario for Bharti Airtel will be Rs. 138 billion, said ICICI Securities in its report.

The report further said, ‘However, Bharti has traded only 29% of Aircel spectrum and Aircel bought these spectrums only in FY11 (AGR liability is from FY03), hence assigning the entire liability would be unjustifiable.’ In the past few quarters, Bharti Airtel has shown a notable resilience in the telecom industry. Moreover, it was the only telecom service provider to ‘transfer a sizable part of the tariff hike into ARPU.’

ICICI Securities also mentioned about the 5G rollout in India. It stated that the 5G network may soon launch in India. However, it further stated that it may not witness 5G ‘becoming mainstream consumer technology soon.’ The 5G ecosystem is still in the emergence phase. Even after the evolution, it is majorly targeted at enterprise use cases. The firm said that the 4G network will still be the mainstream consumer technology despite the launch of 5G. 

The 5G network will be used for ‘de-clogging network capacity’ in some of the places like stadiums and malls. There may not be notably enhanced incremental network CAPEX, said ICICI Securities in its report. The 5G technology can’t be launched all alone on 3500 MHz bands as it is the slightest propagation capability. Bharti Airtel is all set for the integration of 5G network technology with its existing network. To get more telecom services related news and updates, stay tuned to this website. 

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