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MOSL: TELECOM: Changing market construct 2.0 – impact of new developments

TELECOM: Changing market construct 2.0 – impact of new developments

 

Since the last report, when we discussed VIL’s pressing need to improve liquidity to service debt, two major developments have occurred: 1) the government’s relief package, including the four-year moratorium on regulatory payments, and 2) ~20% tariff hikes. This has certainly given VIL some breathing room, but this begs some key questions: Is this enough to bring it out of the woods? What would the corollaries of this be on peers? We elucidate this in the report. 

Moratorium and tariff hikes address 70% of VIL’s next four-year cashflow requirement

In our report last month, we highlighted that against the current EBITDA (pre-Ind AS 116) of INR57b (2QFY22 annualized), VIL had three key obligations: a) INR220b in annual installments towards deferred spectrum and AGR liabilities; b) debt servicing and maintenance capex of INR70–80b; and c) INR64b for the upcoming NCD repayment over Dec’21–Mar’22. Firstly, the government relief package – which, among other things, extended the moratorium by another four years up to Dec’25 – particularly helped VIL address INR220b worth of annual installments. The second positive development came in the form of the much-awaited 20% tariff hikes by all the three large telcos. This would help improve EBITDA for RJio/Bharti/VIL by 27%/13%/68%, especially helping VIL reach EBITDA of INR118.7b (pre-Ind-AS 116) by FY23. This would help manage debt servicing and maintenance capex, provided the market share loss is arrested. We have more on this below.