Vodafone Idea narrows loss in Q2, survival hinges on government relief

Vodafone Idea Ltd, India’s third-largest telecom operator, surprised with a better-than-expected performance on a decline in expenses, especially finance costs, in the September quarter.

However, its debt of over ₹2 trillion and repayments starting next year continue to weigh on its finances, making its survival dependent on government relief, according to analysts.

The telecom operator posted a net loss of ₹5,524 crore, lower than the year-ago loss of ₹7,176 crore and also Bloomberg’s estimate of a loss of ₹6,712 crore.

The lower losses can be attributed to a reduction in expenses, particularly finance costs, which include interest payments on debt and other liabilities, accounting for 43% of its revenue from operations.

The operator's losses narrowed from the previous quarter's ₹6,608 crore as the finance cost fell 18.8% quarter-on-quarter and nearly 28% year-on-year to ₹4,784 crore.

The company's bottom line may have also benefited partially from the lower debt resulting from the government's conversion of dues worth ₹36,950 crore into equity in April.

AGR relief brings hope

The company reported its quarterly results at a time when it continues to grapple with the issue of the adjusted gross revenue (AGR) dues. The Supreme Court on 3 November clarified that the government could reassess and reconsider all of Vodafone Idea’s adjusted AGR dues as of 2016-17, including interest and penalties, delivering significant relief to the cash-strapped telecom company. Following this, Bharti Airtel Ltd is also in the process of seeking a waiver from the government on the AGR dues.

AGR is the income figure used to calculate the licence fees and spectrum charges that telecom companies must pay the government.

The government owns a 49% stake in Vodafone Idea. On the AGR matter, the company said: “We are in discussion with the department of telecommunications (DoT) for next steps on this matter.” As of March-end, the company’s AGR dues stood at ₹83,400 crore.

“The group's ability to settle the above liabilities is dependent on reconsideration/re-assessment of AGR dues, including interest and penalty up to 2016-17 by the DoT, fund raise through equity and debt and generation of cash flow from operations,” Vodafone Idea said in its financial statements.

“Based on current efforts and recent directions by the Hon'ble Supreme Court, the group believes that it would be able to get DoT support, successfully arrange funds and generate cash flow from operations,” the company added.

“Whilst we do not yet explicitly bake in AGR relief into our forecasts as we await contours of any relief package that the government may announce, we implicitly factor in relief by assuming Vi (Vodafone Idea) is successful in completing its debt raise and ensuring it stays serviceable (AGR debt and external debt are fungible from a cash/balance sheet perspective), which should enable the company to deliver on its ₹50,000-55,000 crore three-year capex plan,” said analysts at brokerage house Citi in a note dated 5 November.

The company’s revenue from operations increased 2.4% on-year to ₹11,194.7 crore, surpassing Bloomberg’s estimate of ₹11,136 crore. The improvement can be attributed to the company’s network expansion and increase in data consumption on the network.

On a sequential basis, the company’s revenue rose 1.6% from ₹11,022.5 crore in the preceding quarter.

“We continue to make steady progress towards our strategic intent of delivering superior customer experience. We expanded our 4G coverage to over 84% of the population and completed the 5G rollout in all 17 circles where we hold 5G spectrum,” said Abhijit Kishore, Vodafone Idea chief executive officer, in a statement.

“The growth of 21% in data volume reflects our ability to retain and engage customers through our differentiated prepaid and postpaid offerings.”

Kishore was appointed as the CEO of the company in August. The company remains engaged with lenders to secure debt financing to support its broader capex plans of ₹50,000-55,000 crore. In August, the company announced that it had begun exploring non-banking sources of funding to maintain the continuity of its critical capital expenditure cycle.

Subscribers and ARPU trends

As of September-end, the company’s subscriber base was at 196.7 million, down by 1 million sequentially. In the second and third quarters of 2024-25, Vodafone Idea lost 5 million subscribers each. In the preceding quarter, the company had lost just 0.5 million subscribers as it improved its network.

In the September quarter, the company’s 4G/5G subscriber base also improved to 127.8 million, as against 127.4 million in the preceding quarter.

Alongside 5G rollout, we continue to invest in expanding our high-speed broadband network by adding new 4G sites and upgrading our core and transmission network for high-speed broadband network, the company said, adding that its 4G population coverage increased to over 84% as of September compared to 77% as of March 2024.

Owing to improvements in its network, the company stated that its 4G data capacity increased by over 38%, resulting in a 17% improvement in 4G speeds in September compared to March 2024.

The company’s average revenue per user (Arpu), a key performance metric, rose marginally to ₹167 from ₹165 in the preceding quarter. In comparison, Reliance Jio’s Arpu rose to ₹211.4 in the September quarter from ₹208.8 in the preceding quarter, whereas for Bharti Airtel, Arpu was ₹256, up from ₹250 in the preceding quarter.

Vodafone Idea’s earnings before interest, taxes, depreciation, and amortization (Ebitda) came in at ₹4,685 crore, a marginal rise from the preceding quarter's ₹4,612 crore, but up 3% on-year largely owing to revenue growth.

Even as Vodafone Idea was able to narrow its losses, the company has been strapped with huge dues. As of 30 September, the company’s deferred payment obligation (including interest accrued but not due) towards spectrum, which is payable over the years till 2043-44 and towards AGR dues, which is payable over the years till 2030-31, aggregates to over ₹2 trillion, marginally up from ₹1.99 trillion in the preceding quarter.

Its outstanding debt from banks (including interest accrued but not due) was ₹1,542 crore, down from ₹1,944.5 crore in the preceding quarter. The company said its debt from banks payable by September 2026 is ₹1,440 crore.

The company added that the AGR instalment on which moratorium was availed as per the telecom reforms package 2021, due during 2025-26, is ₹16,428 crore. The amount has to be paid in the absence of any relief. Instalments related to deferred payment obligations towards spectrum payable by September 2026 stand at ₹2,558 crore.

On Monday, shares of Vodafone Idea ended 0.8% lower at ₹9.53 on NSE, against the Nifty 50's 0.32% rise.