Vodafone Idea may be strapped for cash, but it is putting up a hard fight

While investors are somehow sustaining hopes of a fightback by the firm despite the odds, Vodafone Idea, on its part, is doing the best it can with its meagre resources.

Its gross subscriber additions of 22 million were at a multi-quarter high. And, while it continued to lose subscribers on a net basis, subscriber losses have been contained at 2 million in the past two quarters, compared to losses of as high as 8 million, 11 million and 13 million in the preceding three quarters.

What’s more, in the premium 4G segment, the company has added 4 million subscribers in each of the past two quarters. It has also gained data traffic market share in the March quarter, with its total traffic growth exceeding the growth of Reliance Jio, according to data collated by Jefferies India Pvt. Ltd.

Vodafone Idea is clearly punching above its weight. It is weighed down by extremely high debt, and its cash levels have nearly entirely depleted. But it has somehow managed to grow subscribers in the key 4G segment and drive data traffic growth. “Post-merger, the company was quick to derive cost synergies. Now, the network integration is complete and is bolstering subscriber numbers," said an analyst at a domestic institutional brokerage, requesting anonymity.

Of course, it continues to lose subscriber and revenue market share, as its competitors are growing at a much faster pace. Analysts at Goldman Sachs pointed out that the company has lost another 130 basis points (bps) of revenue market share in the March quarter, taking its cumulative share loss to 630 basis points over the past 12 months. One basis point is one-hundredth of a percentage point.

And thanks to the regulator’s decision to abolish the interconnection usage charge (IUC), the firm’s revenues fell by 12% sequentially, leading to higher-than-usual losses. The telecom provider’s net loss in the March quarter rose to ₹6,985 crore from ₹4,540 crore in the previous quarter. On a like-to-like basis, its total revenues and average revenues per user were flat, analysts said.

However, for all its heroics, the fact remains that Vodafone Idea is staring at a bleak future. Its ability to continue as a going concern depends entirely on its ability to raise additional funds and refinance debt. It has been nine months since the company’s board approved fund-raising worth ₹25,000 crore. But there is still no news on this front, leading to disappointment on the Street. The company’s shares fell 8.5% on Thursday.

“With the company waiting till 30 June to announce March quarter results, the Street was assuming the delay was to make room for an announcement on the fund-raising aspect," the analyst added.

Analysts said the firm is headed for a financial crisis when large payments come due. Its current cash balance is merely ₹350 crore and its operations are still burning cash. In the second half of FY22, some borrowings are due for repayment. Even if it manages to refinance them, there is a large deferred spectrum payout of ₹8,211 crore due in April 2022. And, unless the Supreme Court provides relief, there will be payouts related to the AGR dues as well.

Vodafone Idea’s fightback may seem impressive, but what really counts is that potential investors are impressed, and are willing to provide the cash it badly needs to survive.