Despite tariff hikes and sharp cost cuts,  losses pile  up  at  Vodafone  Idea

All else remaining the same, the tariff hikes in December 2019 and the sharp cost cuts in the past few quarters should have brought Vodafone Idea Ltd (VIL) out of the woods. But alas, all else hasn’t remained the same.

Subscriber losses have continued, especially in the high-value postpaid segment, resulting in pressure on revenue. So, despite the sizeable tariff hikes, VIL’s revenues are slightly lower compared to year-ago levels. And while operating expenses have been slashed brutally, all of those gains were offset by an increase in interest costs.

Losses before tax and one-time items stood at ₹6,229 crore in the December quarter, higher than the ₹5,788 crore loss in the year-ago period. On a sequential basis, net debt rose by ₹2,570 crore, despite net cash receipts of ₹1,360 crore from the sale of the firm’s stake in Indus Towers last quarter. This implies a cash burn of nearly ₹4,000 crore in Q3. Cash burn was much lower at ₹1,400 crore in the year-ago period, despite capex being about three times higher.

VIL’s balance sheet constraints have resulted in relatively lower network investments, which in turn have led to a loss in subscribers and high losses. Interest costs, meanwhile, have kept compounding, making things progressively worse.

The silver lining in the Q3 results is that subscriber churn has reduced, even though it remains higher than peers. Monthly subscriber churn stood at 2.3% in Q3, compared to 3.3% a year ago.

Analysts say the company was possibly a beneficiary of the protests by farmers, which impacted subscriber additions of Reliance Jio Infocomm Ltd towards the end of last year. VIL’s data traffic growth has also been decent at 18% year-on-year.

And while losses remained high at the pre-tax level, Ebitda was higher than analysts’ estimates owing to the sharp cost cuts. Ebitda stands for earnings before interest, taxes, depreciation and amortization.

Needless to say, the need of the hour clearly is to raise funds quickly, replace some high-cost debt and make necessary network investments and improve coverage.

On this, VIL’s quarterly results update had the disconcerting note that it is still in talks with investors for its planned fundraising. Analysts had been hoping for the deal to close in January, and are beginning to get worried. “It seems like a chicken-and-egg situation, where prospective equity investors are waiting for confidence from a debt fundraise and vice-versa with debt investors,” said an analyst at a domestic institutional brokerage.

“For VIL, while there was an earnings beat at the Ebitda level in Q3 thanks to sharp cost cuts, it doesn’t really matter in the larger scheme of things. The fundraising needs to happen sooner than later for the firm to arrest its rapid decline,” he adds.