A year is a long time in the life of India’s telcos. In March 2019, Vodafone Idea Ltd was the market leader by a wide margin in terms of number of subscribers. It had a net worth of about ₹60,000 crore, and was about to augment its ₹7,550 crore cash balance with a ₹25,000 crore rights issue.
Of course, everyone knew that it was a company in decline, but hardly anyone could predict the rapid pace of decline.
In March 2020, Vodafone Idea has fallen behind both Reliance Jio Infocomm Ltd and Bharti Airtel Ltd in terms of subscribers. More importantly, its net worth has practically evaporated and now stands at only ₹6,000 crore. Based on the net loss in Q4, even adjusted for exceptionals, it looks like the company’s net worth would have totally wiped out by end-June. Cash and cash equivalents stood at less than ₹2,500 crore, far lower than the quarterly rate of cash burn. This means that debt refinancing would now be necessary to run operations.
Vodafone Idea has reached this precarious position despite a hefty hike in tariffs in December. This helped the company report a 6% sequential increase in revenue in Q4.
Average revenue per user (Arpu) rose 11%, far better than the mere 2% expansion at Jio, and close to the 14% increase reported by Bharti Airtel. Perhaps for the first time, Vodafone Idea matched Jio’s sequential revenue growth, although, of course, this is a pyrrhic victory.
Earnings before interest, taxes, depreciation and amortization (Ebitda) grew 16% after adjusting for exceptional items, and reflected the benefits of tariff hikes. But the good news ends there. Capital expenditure during the quarter dropped 45%. The company’s cash constraints and a resultant delay in investments in its network are adversely impacting subscriber numbers.
The company continues to lose subscribers, with the user base at the end of the March quarter being 4% lower from December. Additions of 4G users were just 10% of Bharti’s levels.
If the low cash balance wasn’t bad enough, the Supreme Court has been demanding a reasonable upfront payment before settling for a staggered payment mechanism for adjusted gross revenue (AGR) dues.
Already, the upfront payment of ₹6,850 crore towards AGR dues, coupled with the cash burn in Q4, has led to a further increase in net debt. In end-March, net debt stood at ₹1.125 trillion, up from ₹1.033 trillion in end-December. Meanwhile, annualized Ebitda using Q4 numbers result in an unwieldy net debt to Ebitda ratio of 16 times.
Vodafone Idea’s future has hung in the balance for some time now. While much depends on the final verdict from the apex court on the repayment schedule of AGR dues, it goes without saying that the company also needs a quick equity infusion to stay alive.