Vodafone in Catch 22; EDITBA fell to 8.1% Contrary to 26.5% After Merger

Wounds are festering of Vodafone as the company’s Editba fell to marginal 8.1% in comparison to 26.5% immediately after merger with Idea Cellular Ltd. Total Editba stands at ₹977 crore.

Ebitda stands for earnings before interest, tax, depreciation and amortization.

Vodafone Idea will be quick to point out that this great divide with Airtel’s margins will get bridged after accounting for synergy benefits. But note that even after these savings kick in, profit will be merely enough to meet interest costs.

Bharti Airtel Ltd had also reported Ebitda margins of about 21% for its India wireless business last quarter.

At the current share price, Vodafone Idea’s $3.5 billion fundraising plan could mean a dilution of around 69% in the company’s equity. However, the news could lead to a rally in the stock, leading to lower dilution. Graphic: Mint

“Current annualized Ebitda plus synergy gains could mean a baseline Ebitda of ₹10,000-12,000 crore. This would not leave much to spend on capex after paying interest,” analysts at Kotak Institutional Equities wrote in a note to clients.

What’s more, Vodafone Idea’s net debt stands at about 10 times these estimated Ebitda figures. As such, there is a desperate need to deleverage and raise funds for capital expenditure. Though Airtel is smaller in revenue terms, its capex is more than 2.5 times that of Vodafone Idea.

Capex constraints are reflecting in revenue market shares. Vodafone Idea’s pro forma revenues fell 7.1% sequentially in Q2, much higher than the 2.2% decline reported by Airtel.

It’s against this backdrop that the company has announced fundraising plans of ₹25,000 crore (about $3.5 billion), of which more than ₹18,000 crore will come from the promoters. At the current share price, this could mean a dilution of around 69% in the company’s equity. However, the news could lead to a rally in the stock, leading to lower dilution.