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Home / Markets / Mark To Market /  Tariff hikes go missing at Vodafone Idea in Q1; things go from bad to ugly

Tariff hikes go missing at Vodafone Idea in Q1; things go from bad to ugly

Vodafone’s cash position has weakened further

Voda Idea’s subscriber base has fallen by 8% since end-Dec, losing market share to Jio and Airtel

Vodafone Idea Ltd has been a company in decline for some time now. But its June quarter results show that things have gone from bad to worse. Hefty tariff hikes in December had helped Bharti Airtel Ltd and Reliance Jio Infocomm Ltd report revenue growth of 15-18% in the past two quarters. In Vodafone Idea’s case, it’s almost as if the tariff hikes never happened. Its revenue has fallen 4% in the past two quarters.

Vodafone Idea Ltd has been a company in decline for some time now. But its June quarter results show that things have gone from bad to worse. Hefty tariff hikes in December had helped Bharti Airtel Ltd and Reliance Jio Infocomm Ltd report revenue growth of 15-18% in the past two quarters. In Vodafone Idea’s case, it’s almost as if the tariff hikes never happened. Its revenue has fallen 4% in the past two quarters.

Average revenue per user (Arpu) rose by just 4.6%, far lower than the 16.3% jump in Airtel’s Arpu in the past two quarters. “The modest sub-5% increase in Arpu is baffling. This either reflects a deteriorating quality of the 4G subscriber base or down-trading within this segment—a worrying sign, either way," Kotak Institutional Equities analysts said in a note to clients.

Average revenue per user (Arpu) rose by just 4.6%, far lower than the 16.3% jump in Airtel’s Arpu in the past two quarters. “The modest sub-5% increase in Arpu is baffling. This either reflects a deteriorating quality of the 4G subscriber base or down-trading within this segment—a worrying sign, either way," Kotak Institutional Equities analysts said in a note to clients.

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Vodafone Idea’s subscriber base has fallen by 8% since end-December, losing market share to Reliance Jio and Airtel in the process.

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The bulk of the decline in the subscriber base is outside the 4G segment. As such, its Arpu should have increased at a much faster pace, with the high-value 4G subscribers now making up a higher proportion of the total base. But the fact that the Apru doesn’t even reflect the tariff hikes taken in December is clearly a worrying sign.

“With Vodafone selectively investing in 4G networks, retaining premium customers is proving to be tough," said Rajiv Sharma, head of research at SBICAP Securities Ltd.

Vodafone Idea’s cash position has weakened further. In end-June it reported cash balance of 3,500 crore, and it has since made payments worth 3,900 crore to the government and to debt mutual funds, where some debt payment was due. Note that the company’s net debt also increased by 3,000 crore despite capex of just 600 crore. As such, cash burn of around 2,500 crore continues on a quarterly basis, even before considering capex.

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When more debt repayments become due, the company will be in a tight spot to meet obligations, considering its financial position. In Q1, it managed to prop up earnings before interest, tax, depreciation and amortization through aggressive cost cuts. But of what value is cost-cutting when revenues are declining at a rapid pace?

Investors had thought that the hefty tariff hikes in December would give Vodafone Idea a short-term boost and, indeed, the March quarter results had provided some hope. But the Q1 results have shown that the company’s troubles run far deeper. “Essentially, from a sector standpoint, Vodafone Idea’s results only reaffirm our core thesis—massive price hikes or a two-player market!" Kotak’s analysts said.