Vodafone Idea witnessed a significant decline of over 11 percent in its share price on Wednesday, following the announcement of its fundraising plans.
The stock of Vodafone Idea was observed trading at Rs 13.98, reflecting a decrease of 11.91 percent on the Bombay Stock Exchange (BSE).
According to a report by Motilal Oswal Financial Services, the anticipated capital infusion by Vodafone Idea is critical to address immediate liquidity requirements and support network expansion endeavors.
Despite the proposed fundraising efforts, Vodafone Idea still grapples with a substantial debt burden of Rs 2.1 trillion, with an annual installment obligation of Rs 430 billion starting from the fiscal year 2026. This poses a significant challenge considering the company's FY24 EBITDA of Rs 84 billion.
The report underscores the limited potential for equity shareholders to benefit from operating leverage gains due to the substantial debt servicing requirements. Even with a hypothetical 14x EV/EBITDA ratio and a net debt of Rs 2.1 trillion, the prospects for equity holders remain constrained.
In line with previous management disclosures, the board of Vodafone Idea has approved an equity fundraising initiative of up to Rs 200 billion, with contributions expected from the promoters. The total fundraising target, inclusive of both equity and debt, amounts to Rs 450 billion. The equity fundraising is anticipated to be completed in the next quarter, following approval from shareholders during the meeting scheduled for April 2.
The report further highlights the potential risks associated with the company's financial obligations post the moratorium period ending in FY26, considering the substantial gap between annual obligations and EBITDA.
Upon successful completion of the fundraising exercise, Vodafone Idea aims to channel the raised capital towards enhancing its 4G network infrastructure and advancing the deployment of 5G technology. This strategic move is expected to strengthen the company's market position and operational capabilities.
The absence of necessary investments had previously posed challenges for Vodafone Idea, resulting in the migration of premium subscribers to competitors' networks and impacting network quality. The infusion of funds, both through equity and debt, is anticipated to fortify the company's network infrastructure and mitigate customer churn risks.
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