Hot Pursuit     05-Jun-24
Care Ratings upgrades ratings of Vodafone Idea to "BB+" with 'stable' outlook
Vodafone Idea said that the credit rating agency Care Ratings has revised its rating assigned to the long-term bank facilities to "CARE BB+" from "CARE B+" with 'stable' outlook.

The agency has also upgraded the company’s short-term bank facilities to CARE A4+ from CARE A4.

Care Ratings said that the revision in rating assigned to long-term and short-term bank facilities of VIL factors in large fund raise through follow-on public offer (FPO) of Rs 18,000 crore from institutional and retail investors apart from preferential issuance of Rs 2,075 crore to one of the promoters, Aditya Birla Group (ABG).

The Indian telecom sector is likely to witness significant tariff hikes in FY25 and FY26, which along with better subscriber mix, is expected to contribute to a substantial improvement in the average revenue per user (ARPU) of all players including VIL.

Ratings also take cognisance of experienced management team, pan-India telecom presence with high brand recognition supported by a stable outlook for the Indian telecommunications industry, strong promoter groups [the Aditya Birla group (ABG) and the Vodafone group Plc (VGP)] assisting the entity and substantial shareholding (23.77% as on 31 May 2024) of the Government of India (GoI) through the Department of Investment and Public Asset Management (DIPAM).

To augment its business and regain its market share, VIL plans to make substantial investments in capex over next 3 years ending FY27 in the range of ₹50,000 crore to ₹55,000 crore. The Capex will be towards expanding 4G population coverage in 17 priority circles, 5G launch in key geographies and capacity expansion to address the increasing data demand. As on May 31, 2024, the company continues to engage with lenders for tie-up of bank debt.

The business plan aims to restrict churn in the subscriber base, increase overall subscriber base, translating to enhanced revenues and improved profitability in the medium term. Hence, timely tie-up of adequate bank finance and successful implementation of capex to uplift the business risk profile is critical from a credit perspective.

As of 31 March 2024, total bank debt and optionally convertible debentures (OCD) stood at approximately Rs 4,200 crore, while the GoI obligations towards spectrum and adjusted gross revenue (AGR) liabilities payable over period of time were substantially large at about Rs 2.03 lakh crore (excluding interest accrued). Major repayment obligations pertaining to spectrum and AGR liabilities shall commence from FY26. The company expects continued government support.

However, rating strengths remain underpinned by VIL’s deteriorated financial and business risk profile, where, tangible net worth has eroded, significant exposure to operational creditors, and modest revenue growth of 1.1% in FY24 due to constantly declining subscriber base with delay in raising funds against envisaged timelines.

The company’s exposure to inherent regulatory and technological risks of the industry apart from intensely competitive business environment are other credit weaknesses.

Vodafone Idea, with its pan-India operations, is one of the largest telecom operators providing voice, data, enterprise and other value-added services across 22 service areas.

The scrip had surged 12.32% to end at Rs 14.86 on the BSE today.

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