In September this year, the government lent a huge helping hand for telecom companies, especially Vodafone Idea, when it announced a big relief package. The measures included a four-year moratorium on dues and rationalisation of the definition of adjusted gross revenue (AGR), which will exclude non-telecom revenue of companies.
While the government has done its bit, Vodafone Idea has challenges on two key fronts—retaining its subscribers and securing funds for future investments. And this is something only the company can address.
Vodafone Idea reported a consolidated net loss of Rs 7,132 crore in the second quarter, lower than the Rs 7,218 crore loss it had reported in the year-ago quarter. Its quarterly revenue, however, declined near 13 per cent to Rs 9,406.4 crore from Rs 10,791.2 crore.
A decline in subscriber base is a major worry. When Vodafone and Idea Cellular merged in 2018 to become Vi, the combined subscriber base stood at 408 million, making it the largest telecom company in the country at the time. At the end of the September quarter, it had 253 million subscribers, compared with 255.4 million in the June quarter, a loss of 2.4 million subscribers. In comparison, Bharti Airtel had 354 million customers in its India business at the end of September 2021, up 1 per cent from the 352.87 million customers in the June quarter. Reliance Jio has a subscriber base of 429.5 million as of September 2021.
While Vi’s net subscriber loss in the quarter was much less than the 12 million it lost in April-June, its continued loss of subscribers even on a low base is a cause for concern considering the rising average revenue per user (ARPU) ask rate to become cash breakeven, said research analyst Sanjesh Jain of ICICI Securities.
Vi’s 4G subscribers rose 3.2 million, quarter on quarter to 116.2 million, and this migration from 2G to 4G should aid in an increase in ARPUs, but a generalised tariff hike is needed to improve the health of the company, said Piyush Pandey, lead analyst at Yes Securities.
Vi’s ARPU has increased to Rs 109 in September from Rs 104 in June, but here too, it lags behind its rivals. Reliance Jio’s ARPU stood at Rs 143.6 and that of Airtel is as high as Rs 153.
Vi CEO Ravinder Takkar has indicated that a much-needed tariff hike is likely to happen soon. But, as seen above, there is a lot of catching up to do on the ARPU front for the company. Earlier this year, both Airtel and Vodafone Idea hiked base post-paid and prepaid tariffs. But, a broader across-the-board tariff increase is awaited.
The other problem is its huge debt; as of September 30, 2021, the total debt of the group, including interest accrued but not due, stood at more than Rs 1.94 lakh crore.
Analysts say the company needs to stem the subscriber loss, raise tariffs and also secure additional funds if it is to tide over the troubles and strengthen its network as well as market position.
“Though the telecom relief package has stalled payments to be made to government, and helped Vi meet its other obligations, it is still short of funds to incur capex in the absence of equity infusion,” said Jain.
Vi has been in talks with banks as well as investors for fundraising and is hopeful of a deal by the end of the current financial year, which along with the possible tariff hike will provide the much-needed cash for investment. But, it’s the case of when, given that the fundraising talks have been ongoing for some time now.
“It needs capital infusion for augmenting the capital expenditure in its network infrastructure,” said Pandey of Yes Securities.
Nomura Securities research analyst Aditya Bansal noted that Vi has trailed peers on network investments in recent years.
Vi added a modest 3,400 mobile broadband (MBB) sites in the second quarter, versus 56,000 MBB sites added by Airtel. He also pointed out that the company’s Rs 1,300 crore capex in the second quarter was 70 per cent lower than the Rs 4,600 crore for Bharti Airtel’s India wireless business.
“Vi has lost 17 per cent market share since the merger, driven by relatively lower network investments, and a large fundraising is the need of the hour to protect further market share erosion. Without significant fundraising, Vi’s network investments and 5G rollout would remain constrained, at least in the near term, leading to a further market share erosion,” said Bansal.
Vi shares had hit a record low of Rs 4.55 on the BSE on August 5, 2021, as investors were worried over its survival. The subsequent relief package, announced by the government in September, lifted the shares. On Tuesday, they touched an intra-day high of Rs 10.29, still short of the 52-week high of Rs 13.80 it had touched on January 15, 2021.
Analysts remain bearish on the stock. Nomura, for instance, has a ‘reduce’ rating on the stock, with a Rs 8 target price. Similarly, Yes Securities too has a ‘reduce’ rating on it with a Rs 9 target price. ICICI Securities’ estimates and target price on Vi remain under review awaiting clarity on the company’s strategy.