Vodafone Idea Ltd.: Voda Idea disappoints markets with lower than expected ARPU, capex, shares fall

Shares of Vodafone Idea (Vi) was trading at Rs 12.32, lower by 1.75 per cent on Monday morning as markets were disappointed with the continued subscriber loss, below expectation average revenue per user (ARPU), capex constraints that the telco posted in its third quarterly results.

“…overall Vi continues to be in a vicious circle of inadequate network investment, market share losses, and inability to invest in network driving further losses until a successful capital raise,” said JP Morgan in its report .

The third largest telco’s capex spending was Rs. 970 crore in the Oct-Dec quarter, compared to Rs. 1040 crore when compared sequentially.

The analysts highlight the road ahead for the telco, as it sharply narrowed its net loss to Rs 4540.8 crore for the third quarter, compared with Rs 7203.4 crore in the second quarter, on the back of a cost optimisation plan and as it added more 4G users. The telco posted its results last Saturday.

Brokerage firm CLSA has called it an “unsatisfactory performance” highlighting the “enormous debt burden” of the operator.

“With V-Idea’s 3QFY21 miss, we cut our FY21-23CL revenue forecast by 1 per cent-6 per cent. Besides AGR, V-Idea is reeling under enormous debt led by spectrum payment liabilities,” noted the firm in its report .

Vi’s net debt excluding adjusted gross revenue (AGR) and lease liabilities is Rs 1,17,100 crore and includes Rs 94,200 crore in deferred spectrum payments. The AGR dues are about Rs 50,400 crore that the telco has to pay over the next 10 years .

However, loss of subscribers and lower than expected ARPU – a key industry metric continues to plague the telco .

“VIL had significantly decelerated subs loss to just 2mn (vs 9.8mn subs loss in past four quarters) which is much better, but it is still losing,” said ICICI Securities .

The telco posted ARPU of Rs 121 compared with Rs 119 in the previous quarter, helped in part by the December price hikes and more subscribers moving up the tariff plans. Rival

and Reliance Jio Infocomm (Jio) posted ARPUs of Rs 166 and Rs 151 respectively.

JP Morgan was expecting an ARPU of Rs 123 from Vi.

Markets are now estimating a quick tariff hike for the telco, similar to the 2019 levels where at least 30 per cent increase was brought in across tariff plans.

“It may raise tariffs as it starts adding subs base, which means we are nearing tariff hike; and it may again be a steep increase considering rising required run-rate for cashflow breakeven,” ICICI added.

Vi on the risks that continue to plague it, the company said, “The company’s ability to continue as a going concern is essentially dependent on successful negotiations with lenders and its ability to generate the cash flow from operators that it needs to settle/refinance its liabilities and guarantees as they fall due.”

“We remain focused on executing our strategy, and our cost optimization plan remains on track to deliver the targeted savings. The Board has approved funds raising to support our strategic intent and we are in active discussions with potential investors,” said managing director and CEO of Vi,Ravinder Takkar.

The company, which plans to raise Rs 25,000 crore via a mix of equity and debt, said it is in “active discussions with potential investors”. According to reports, Vi is in talks with a consortium backed by Oak Hill Advisors to raise the funds.