Telecom operator Vodafone Idea Ltd faces a daunting set of challenges, with declining subscriber base a key concern. In the December quarter (Q3FY24), the service provider saw its subscriber loss expand to 4.6 million, up from 1.6 million in the previous quarter, leaving it with 215.2 million subscribers as of end of December. Additionally, there was a sequential drop in data usage per customer in Q3.
This indicates that some of the higher usage (read quality) subscribers of Vodafone Idea could be porting out, possibly to take advantage of Bharti Airtel’s and Reliance Jio’s 5G network, said an Axis Capital report dated 30 January.
Clearly, the company needs to make investments in network infrastructure to contain subscriber loss. However, its high debt level complicates matters. As of December end, Vodafone Idea’s net debt stood at a whopping ₹2.1 trillion, up nearly 1% from September end. With about ₹5,400 crore in debt repayments due over the next year and an annualized Q3 Ebitda (pre Ind AS 116) of around ₹8,600 crore, the company’s financial position is precarious. Ebitda is earnings before interest, tax, depreciation and amortization.
“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) increase,” said analysts at Motilal Oswal Financial Services in a report on 30 January.
In short, it is high time that Vodafone Idea raises funds. In fact, capital expenditure (capex) required to expand 4G coverage and launch 5G services hinges on fund raise. Capex levels are currently falling, and spending stood at ₹330 crore in Q3, down about 37% sequentially. Once the funds are raised, the company would take six to seven months to roll out 5G.
On the other hand, peers Reliance Jio and Bharti Airtel have already rolled out 5G. The delay in 5G capex by Vodafone Idea could hurt subscriber base, which is already declining.
Amid this gloom, a bright spot is that Vodafone Idea’s Arpu has been growing steadily, helped by changes in entry-level plans and subscriber upgrades. In Q3, Arpu stood at ₹145, up 2% sequentially, whereas growth in Jio’s Arpu was flat. The migration from 2G to 4G would continue to drive Arpu growth for Vodafone Idea. But against the current backdrop where competition is heightened and the company continues to lose market share, fund raise is critical to revive investor sentiment, which has been battered.
Shares of the company are down 22% from a 52-week high of ₹18.40 apiece seen in early January. Besides fund-raise, tariff hikes could be another significant trigger for the stock.