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Vodafone Idea Rating: Neutral, fund infusion along expected lines

The near-term repayment needs have been met but cash is required for capex; ‘Neutral’ rating maintained

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Vodafone had sold 7.3% stake in Indus Towers, of which 4.7% was acquired by Bharti.

VIL announced an equity infusion of 45 bn by its promoters – Vodafone and the Aditya Birla Group (ABG) – at13.3/share (20% premium to its CMP), implying a dilution of 11% (excluding the dilution due to the government moratorium). It also plans to undertake an Rs 100 bn QIP/private placement and will seek shareholder approval for the same at its EGM on 26th Mar’22. v

Vodafone using Indus Towers’ stake proceeds to infuse equity: Out of the total Rs 45 bn, Rs 33.75 bn will be infused by Vodafone, while ABG will infuse Rs 11.25 bn. Vodafone had sold 7.3% stake in Indus Towers, of which 4.7% was acquired by Bharti. On the other hand, ABG will infuse fresh equity.

The move is on expected lines as VIL could use the proceeds to clear its payables to Indus Towers along with some NCD repayments. This is evident from Bharti’s move to acquire Vodafone’s 4.7% stake in Indus Towers, with a pre-condition that the amount paid be infused as fresh equity in VIL and the latter, in turn, clears its outstanding dues to Indus Towers.

VIL plans to undertake an Rs 100 bn QIP/private placement in one or two tranches. It, however, did not mention any details of the potential investors.

Near term repayments fulfilled, needs cash for capex: VIL had NCD repayments of Rs 64 bn due between Dec’21 and Feb’22, which has mostly been met. Its next repayment is due only in Sep’23. The company has an annualised EBITDA of Rs 65 bn (Q3FY22), which is sufficient to undergo maintenance capex. However, the same remains 25% lower than that for Bharti/RJio. Further arrest of market share loss, which continued until Q3FY22, remains key.

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