Last updated: 19 Aug, 2021 | 03:14 am
Net Loss for 12 consecutive quarters: Vodafone Idea reduced its net loss by 71% to Rs 7,319 crore in Apr-Jun quarter on a year on year basis on account of lower exceptional expenses. The company had reported a net loss of Rs 25,460 crore last year due to provisioning for AGR dues liability. Sequentially, the loss increased 4.2% from Rs 7,022 crore last quarter.
Gross revenue declines: Gross revenue declined 14.1% on a year on year basis to Rs 9,152 crore due to fall in subscribers. Sequentially too revenue declined 4.7% from Rs 9,607 crore. Fewer recharges due to Covid related lockdowns, free validity extensions for low-cost customers, and a slowdown of economic activity impacted revenue growth in the first quarter. EBITDA declined 9.5% on a year on year basis to Rs 3,707 crore.
ARPU least in industry: Average revenue per user (ARPU) fell sequentially to Rs 104 from Rs 107 on account of free recharges during the second wave of pandemic and lower usage. Bharti Airtel and Reliance Jio had reported an ARPU of Rs 146 and Rs 138.4 respectively. Vodafone Idea's wireless subscriber base stood at 25.54 crore as of June as it lost 1.23 crore subscribers since March. The 4G subscriber base was 11.29 crore, a decrease of 10 lakhs during the quarter.
5G readiness: While the company is in the middle of its 4G capex cycle, it’s deploying 5G ready equipment across its radio and core segments. Most of the equipment used in 4G technology is 5G ready, with very minimal incremental capex required. It is successfully deploying 5G ready technologies like Maximo, VSR, and Cloudification of core. The management expects spectrum costs for 5G to fall going forward. It has partnered with CISCO to design and build a cost-effective architecture in emerging market opportunities of 4G, 5G, and Cloud IoT.
The Debt Trap
Vodafone Idea has been trying to raise Rs 25,000 crore through a mix of debt and equity for the past 11 months, but hasn't been able to close a deal yet. The telecom department has sought Rs 58,254 crore from Vi towards AGR dues, of which the company has paid only Rs 7,854 crore. The company’s AGR liabilities, including interest, are now at around Rs 62,180 crore, according to the department’s calculations.
Vi’s net debt for the quarter ended June stood at Rs 1,90,670 crore, of which the next instalment of the AGR liability of around Rs 9,000 crore and debt amounting to Rs 16,853.4 crore is payable in the next 12 months. However, Vi’s cash balance was modest at Rs 920 crore for the quarter ended June.The company has sought a moratorium from the government for its spectrum dues. The company’s deteriorating financial situation has resulted in credit rating downgrade for its long term loans and non convertible debentures.
The company said that it is engaging with investors for new funding, and is conducting parallel discussions with bondholders for refinancing. VIL’s weak liquidity position may force it to rationalize network investments, as is evident from reducing capex intensity and intensifying subscriber churn. A capital raise or government relief package remains critical to provide immediate liquidity support to service the ballooning net debt of Rs 1.9 lakh crore. The only silver lining, as the management indicated, is the recovery in its subscriber base post the lifting of the lockdown in June '21. The share price of Vodafone Idea closed 10.43% higher at Rs 6.35 on Wednesday.
According to estimates by Fitch, Vodafone Idea needs around $3.5-5 billion (around ~Rs 260 to 375 crore) of funding within the next three to six months. This is needed to meet its network capex of $1.5-2 billion (Rs 112- 150 crore) annually (after meeting immediate AGR and spectrum payment commitments). Failing this, the company’s customer losses could rapidly accelerate to around 15-20 million a quarter, leading to an inevitable shut down.
ICICI Securities said Vi’s June quarter cash Ebitda at Rs 1,380 crore shows fast deteriorating cash flow, while liabilities are rising. They see high risk and huge concern for Vi, and in the wake of growing uncertainties, they believe the existing operation is unlikely to meet upcoming payouts, and the risk of default cannot be ruled out as the much anticipated tariff hikes and capital infusion have been insufficient.
JP Morgan backed the view, saying “Vi needs several levels of government and regulatory support to keep it viable,” each of which is likely to benefit peers or dilute equity holders sharply. The overall debt burden from spectrum and AGR remains, keeping the value of equity virtually unforecastable.
Goldman Sachs estimates that even a 50% rise in Vi’s ARPU, which fell 3% sequentially to Rs 104 in June quarter would result in incremental Ebitda of just about Rs 119 crore, which is still well below the amount needed to meet all its repayment obligations. Vi may need to consider a combination of a significant capital raise and a large tariff increase in the very short term, else the company’s market share erosion could accelerate.