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Home / Markets / Mark To Market /  Vodafone Idea inches closer to bankruptcy post dismal Q1 show

There seems to be no light at the end of the tunnel for cash-strapped telco Vodafone Idea (Vi) Ltd. Dismal June quarter earnings have only made the going more difficult.

Vi’s active subscribers declined by 12.4 million in Q1FY22, much more than what the Street had anticipated and more than the 1-2 million decline of the past two quarters. This compares with a flat subscriber base of rival Bharti Airtel Ltd and 14.4 million net additions for Reliance Jio. Thus, Vi’s average revenue per user (Arpu) fell 2.8% sequentially to 104.

Consolidation that came about because of covid and lower gross subscriber addition due to mobility curbs weighed on Vi’s overall subscriber base, the management said in a post-earnings conference call. However, traction has been improving since June, it said.

Poor performance
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Poor performance

Some consolidated subscribers could return and there could be some improvement in gross additions, analysts said. However, the outlook remains bleak given the heightened push by rivals and Vi’s constraints on capex, they said.

An unfavourable combination of huge contraction in subscriber base, weak Arpu and limited cost optimization initiatives translated into poor financials. Consolidated revenue declined 4.7% sequentially to 9,150 crore and net loss increased from 702 crore in Q4FY21 to 732 crore in Q1FY22.

Investors do not like mounting losses, especially against the backdrop of a large pile of debt, and in the case of Vi, this further reduces the chances of survival. No wonder that its shares have nosedived to 5.70 on the NSE, a fall of more than 50% in the past six months.

At the end of Q1, Vi’s net debt stood at 1.9 trillion. This includes deferred spectrum liability of 1.06 trillion, AGR liability of 62,200 crore and bank borrowing of 23,400 crore.

The firm also has a slew of liabilities due for payments such as annual payment towards AGR liability of 9,000 crore in March 2022, bank guarantee of 14,300 crore coming up for renewal, annual payment towards spectrum due in April 2022 and bank debt repayment by June 2022.

“Vi’s Q1 cash Ebitda at 1,380 crore shows a fast deteriorating cash flow, while liabilities are rising. We see high risk and huge concern. Existing operations are unlikely to meet upcoming payouts and the risk of default cannot be ruled out. The much-anticipated tariff hike/s and capital infusion have been insufficient," analysts at ICICI Securities Ltd said in a report. Ebitda is short for earnings before interest, tax, depreciation and amortization.

Vi has filed a review petition in the Supreme Court towards AGR liability and sought a moratorium on spectrum payment from the department of telecom. However, analysts said unless the company raises more funds or hikes tariff, its chances of survival are low.

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