The equity route is important as Vodafone Idea’s debt touched Rs 1.15 trillion as of March 2019, making it difficult to raise fresh debt, said global banking firm, Credit Suisse, in a report.
A Vodafone Idea
spokesperson declined to comment. Lenders said Vodafone Idea is not alone. These companies
will find it tough to meet their cost unless they raise tariff significantly or raise fresh debt if they want to participate in the fifth-generation spectrum auction.
As of March this year, Bharti Airtel
had a debt of Rs 1.06 trillion, while Reliance Jio had a debt of Rs 1.12 trillion. The deferred spectrum charges of the sector to the government were another Rs 2.95 trillion.
On Wednesday, Jio passed on the interconnection usage charges of 6 paise a minute to its customers, thus, raising the prospects of a tariff hike by the sector and cheering shareholders of telecom firms. “We expect Vodafone Idea’s leverage (net debt to earnings before interest, taxes, depreciation, and amortisation, or Ebitda) to decline to 10.5x by 2021-22 (FY22) after the expected price hike, but it will still be higher than the globally acceptable levels of less than 4x,” said Credit Suisse.
Analysts said the financial health of the sector is fast deteriorating as the free cash flow generation remained negative for the sector in the past four years. This led to high leverage for the mobile operators, but the investments in the sector are likely to remain high, given the capacity requirements with surging data growth.
and Idea’s return on capital employed ratios are also down in the past five years and the companies
are yet to recover their cost of capital. Credit Suisse
said it does not see Airtel and Vodafone Idea earning cost of capital in the next five years. Analysts expect pressure on earnings to continue over the next two years, but expect strong recovery in Airtel and Vodafone Idea’s Ebitda from FY22, led by an improvement in mobile tariff.