Vodafone Idea trimmed its loss before tax and exceptional items by 13% sequentially to ₹5,515 crore in the March quarter (Q4FY26). The other important announcement along with the results was promoter Aditya Birla Group’s decision to infuse ₹4,730 crore into the company through warrants priced at ₹11 apiece.
Sure, the fresh fund infusion and the government’s lowering of adjusted gross revenue dues by 27% to ₹64,046 crore should ensure that Vodafone will survive. But the question topmost on investors’ minds is whether it will thrive.
The Street’s reaction to the results was muted and justifiably so. While any hope of earning dividend income is a distant dream for investors, even achieving breakeven is an enormous task. A simple calculation with two key variables – subscribers and average revenue per user (Arpu), will put things in perspective.
Vodafone had 193 million mobile subscribers at the end of Q4, flattish QoQ. India’s mobile subscriber base is almost saturated. The only way to grow is to win customers over from rivals. This looks difficult as Bharti Airtel and Reliance Jio have a strong presence in most telecom circles. So, the other option is to improve Arpu.
Based on the Q4 results, Vodafone’s loss per subscriber per month was about ₹96, which means its Arpu needs to increase to about ₹270 from ₹174. That would be higher than Airtel’s ₹257 and Jio’s ₹214.
On the Q4 earnings call, Vodafone executives said the significant discount in Arpu versus peers could be because 33% of its customers still use feature phones, for which data is not needed. Among its smartphone users, some use them only for voice and not data. There are also data users who don’t opt for unlimited data, which is priced higher.
Wide gap
However, Vodafone is optimistic about bridging the Arpu gap with its rivals to some extent. It was the only operator that increased Arpu sequentially by 1% even though Q4 had two fewer days than Q3. Yet, the Arpu gap with its rivals remains wide.
The best-case scenario for Vodafone’s investors is a substantial tariff hike across the entire sector.
However, making generous assumptions on the Arpu front can only help profitability to a limited extent, given Vodafone’s debt problems. The company has planned capital expenditure of ₹45,000 crore over the three years to FY29.
Though chief financial officer Tejas Mehta said Vodafone will have a cumulative cash Ebitda of ₹60,000 crore over the next three years to FY29, a huge chunk of this will go towards interest payments, leaving little for capex. So, Vodafone will have to continue to borrow to fund capex.
The Vodafone stock trades at an EV/Ebitda multiple of 14 versus Bharti’s 10, according to Bloomberg consensus estimates for FY27. So, there is no compelling case for investors to prefer Vodafone over Bharti.
Also, companies with low debt typically leave more money in the hands of shareholders as opposed to those having to generate cash to repay a mountain of debt. So, it goes without saying that Bharti deserves to trade at a premium multiple versus Vodafone.