Is Vodafone Idea on the turnaround path? The ailing telecom company, which earlier this year raised Rs 18,000 crore in what was the largest follow-on share sale in the country, saw its shares surge two per cent on Wednesday, with the company reporting narrower loss for the April-June quarter.
The net loss of Rs 6,432 crore in the first quarter was nearly 18 per cent lower than the Rs 7,840 crore loss that it had reported in the year ago quarter. The revenue for the quarter, though, was down 1.4 per cent to Rs 10,508 crore from Rs 10,655 crore.
Analysts point the decline in losses was due to lower interest and finance costs. But, the company still faces two crucial challenges. Its still has a huge debt and the company continues to lose subscribers.
Vi noted that the company's debt from banks and financial institutions reduced by Rs 4,550 crore during the last one year. Still, its debt from banks and financial institutions stood at Rs 4,650 crore and Rs 160 crore in optionally convertible debentures as of June 30, 2024.
The payment obligations to government stood at Rs 2.09 lakh crore, including deferred spectrum obligations and AGR (adjusted gross revenue) liability, at the end of the June quarter.
Analysts at Motilal Oswal Financial Services pointed Vi would have to make annual installment of Rs 43,000 crore from financial year 2026 onwards. It looks challenging against the first quarter annualised EBITDA (earnings before interest, taxes, depreciation and amortization) of Rs 8,000 crore, the analysts pointed.
"The significant amount of cash required to service debt leaves limited upside opportunities for equity holders, despite the high operating leverage opportunity from any source of ARPU (average revenue per user) improvement," they added.
Also, importantly, it continues to lose subscribers, given that its larger rivals Bharti Airtel and Reliance Jio have also stronger network coverage, including 5G. Vi is yet to launch 5G services and also has to spend a lot in improving its existing 4G coverage.
Vi lost 2.5 million subscribers in the June quarter. Overall its subscriber base has declined from 221.4 million in the June quarter of 2023 to 210.1 million at the end of June 2024. The company, however, continues to see growth in 4G subscribers. It has added 3.8 million 4G subscribers over the past one year, taking its 4G subscriber base to 126.7 million at the end of June.
Aided by subscriber upgrades and change in entry level plans, the ARPU has improved to 146 from Rs 139. Still, its much lower than Bharti Airtel's mobile ARPU of Rs 211 and Reliance Jio's Rs 181.7.
All the three companies have raised their tariffs from July and this should start reflecting on the ARPUs in the coming quarter. But, the flip side of this is subscribers unhappy with the hike porting out.
"The company is facing higher subscriber port-outs to BSNL currently, given that BSNL has not increased its tariffs, albeit the management believes subscribers will revert to Vi given the better network offerings and experience," said Nomura's research analyst Hemang Khanna.
In the backdrop of the fare hike, ARPU of telecom companies, including Vi, is expected to go up in coming months. However, important for Vi would be to control the subscriber loss by enhancing its network coverage and quickly rolling out 5G, given that Airtel and Jio already have a significant lead on that front.
Akshaya Moondra Vi's CEO pointed that the company has planned capital expenditure of Rs 50,000-55,000 crore over next three years and it is engaged with lenders towards tying up debt for that.
Khanna said the outlook for Vi remained constructive underpinned by its ongoing network investments and 5G rollout and all the three private players aligned to the need for further significant ARPU "repair."
"If Vi is able to materially arrest the decline in its subscriber base in the coming quarters and revert to growth, it will materially further improve the outlook for the stock and drive earnings upgrades," the analyst said.
Sanjesh Jain of ICICI Securities said the first quarter earnings suggested the company continued to underperform peers, pending acceleration in capex following the completion of fund raise.
"The company has priority to reverse the decline, and start growing subscribers," he said.
Jain pointed that the tariff hike is expected to boost Vi's ARPU by 17 per cent. But, downtrading, delayed recharging and SIM consolidation will limit revenue growth potential.
Reduction in AGR liability and restriction in subscriber churn rate could remain the key catalysts for the stock, Motilal Oswal analysts too noted.
