Nuvama Institutional Equities which finds the sector at an inflection point opines that it will likely benefit from a chain of events including fund infusion in debt-ridden Vi, the likelihood of tariff hikes by operators, and government support.
VIL’s FPO of Rs 18,000 crore is one of the largest fundraisers in the history of Indian capital markets and will be followed by the proposed debt raise of Rs 25,000 crore. This could enable Vi to break out of the vicious loop of high debt, lower capex, inferior network quality, and subscriber loss, Nuvama said in a note. As a result of the above factors, the company is suffering lower EBITDA and lower cash flow.
The company has been losing subscribers for 23 quarters now.
Liking the telecom sector to value triangle with three stakeholders viz. operators, subscribers, and regulator, Nuvama said that, operators in the last couple of decades have ceded their share of the triangle first to the government with high spectrum auction price since 2010 and then to subscribers with a price war with the entry of Jio in 2016. The average revenue per user (ARPU) has hit a rock-bottom level, since 2016, it argued.
With the next logical step being a tariff hike for Vi, Nuvama expects Airtel and Jio to follow suit leading to the jump in ARPU, profitability, cash flows, and returns profiles of these operators.The tariff hike is estimated at 10% in Q2FY25 and Q3FY26.VIL’s management is targeting multiple tariff hikes in coming years to improve its ARPU and double its EBITDA to Rs 35,000 crore in the next 2–3 years, which could help it address its debt obligations.
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Nuvama, though, warns against seeing the fundraising exercise as “sufficient” calling it a “necessity”. It also highlights that September 20225 would see the end of a four-year moratorium on AGR payments which the government of India had given. “VIL would need to make payments of Rs 29,000 crore/Rs 43,000 crore in March 2026/Mar 2027. VIL’s cash flows, even on higher tariffs, will be inadequate to meet these obligations,” it said.
For Nuvama, Bharti occupies an enviable position and is poised to benefit from any scenario that plays out. “Without any across-the-board tariff hikes in the sector, it was gaining subscribers continuously – despite taking indirect tariff hikes, by tweaking entry plans in various circles, now and then.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
