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BENGALURU/NEW DELHI : If it weren’t for the tariff hikes anno-unced in November, Vodafone Idea Ltd’s (VIL’s) December quarter (Q3FY22) results would have been duller. Its average revenue per user (Arpu) rose to 115 in Q3, a sequential rise of 5.2%. Consequently, revenue grew 3.3% quarter-on-quarter to 9,717 crore.

Beyond this, investors looking for triggers for the stock, owing to Q3 results or its management commentary, are in for some disappointment. Despite the government relief (moratorium on adjusted gross revenue, or AGR, and spectrum dues for up to four years), liquidity troubles for the telecom company are far from over. VIL continues to be in the red, with reported net loss widening to 7,231 crore in Q3FY22 from 7,132 crore in Q2FY22.

In the slow lane
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In the slow lane

In its post-Q3 earnings conference call with analysts, the management did not share any concrete detail on its capital expenditure plans or timeline on the next fundraising. It said it hopes to revive its capex plans by depending on higher cash flow via tariff hikes and interest savings due to the government’s reform package.

On 10 January, VIL’s board approved the upfront conversion of interest arising due to deferment of spectrum instalments and AGR dues into equity. “NPV (net present value) of this interest is expected to be about Rs16,000 crore as per our best estimates, subject to confirmation by DoT (Department of Telecommunications)," the company said in a media release.

Analysts reckon that at a time when competitors Reliance Jio and Bharti Airtel are going full throttle on investing in network expansions, VIL’s lower capex is a sentiment dampener. In Q3, VIL’s capex stood at 1,050 crore vis-à-vis 1,300 crore in Q2. “VIL’s 9M capex at 3,300 crore is lower than Bharti’s India wireless capex of 4,600 crore in Q2," said analysts from Nomura in a note on 24 January.

“In the call, the management did not give any clarity on capex, which was kind of expected because with liquidity issues, they don’t have much headroom like peers to plan aggressive capex. We expect VIL’s capex to languish at the current levels. The management has said they will be able to share a capex plan in Q4FY22; so until then, investors are in a wait-and-watch mode," said an analyst, requesting anonymity.

Meanwhile, VIL’s overall subscriber base declined to 247.2 million from 253 million in Q2 as a consequence of SIM consolidation. Minutes and data usage also declined. There was a marginal increase of 0.8 million customers in the key 4G segment in Q3.

At the end of Q3, VIL’s net debt stood at 1.975 trillion. With further approval by its board for upfront conversion of the full amount of interest arising due to deferment of spectrum instalments and AGR dues into equity, VIL aspires to prioritize increasing its 4G coverage to match its 2G coverage.

The conversion to equity will lead to the government becoming the largest equity shareholder in VIL with a 35.8% stake. While this might help the company survive in the future, its ability to compete effectively remains to be seen.

As such, investors can expect the full impact of recent price hikes to be visible in the current quarter (Q4). Needless to say, investors could track the revenue trajectory closely in the near term. Further, significant fundraising remains key.

“Without significant fundraising, we think VIL’s network investments and 5G rollout would remain constrained, at least in the near term, leading to further market share erosion," said Nomura’s analysts.

VIL’s shares ended 7.6% lower on Monday compared with the 2.7% drop in Nifty50 index. With this, the stock is down about 35% from its 52-week highs seen on 13 December on NSE.

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