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Vodafone Idea investors remain in pain

At the end of Q1, Vodafone Idea's subscriber base stood at 240.4 million versus 243.8 million in the previous quarter.Premium
At the end of Q1, Vodafone Idea's subscriber base stood at 240.4 million versus 243.8 million in the previous quarter.

  • Vodafone Idea continues to lose subscribers. Not only that, analysts believe the company's 5G spectrum bid will further raise its debt by around 10%. VIL's total gross debt, excluding lease liabilities and including interest accrued but not due, as of Q1FY23, stood at Rs1.2 trillion

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Shares of debt-laden telecom services provider Vodafone Idea Ltd. (VIL) fell 2.75% in Thursday's opening deals on the National Stock Exchange, reacting to the company's weak June quarter earnings.

While Q1FY23 net loss narrowed to 7,296 crore from 7,319 crore in the year-ago quarter, it was higher than analysts' estimates. Revenues rose 13% year-on-year, though. Average revenue per user (ARPU) improved to 128, up 3.2% sequentially. Remember, the company had taken tariff hikes in November and is seeing some flow-through impact of the same. But this doesn't provide much relief to its investors given that the company continues to lose subscribers.

At the end of Q1, Vodafone Idea's subscriber base stood at 240.4 million versus 243.8 million in the previous quarter. Rival Reliance Jio saw its subscribers increase by 9.7 million during the quarter. Vodafone lags peers on usage metrics as well. 

"Total data traffic was up 4% q-q to 5.4 exabytes in 1Q (vs +5% for R-Jio including FTTH). Blended data usage per sub inched up q-q to13GB/month in 1Q (vs 12.5GB q-q and 20.8GB/month for R-Jio)," analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a report.

Further, VIL's participation at the recently held 5G auction was also modest compared with Reliance Jio and Bharti Airtel Ltd. The company bought mid-band 5G spectrum (3300 MHz band) in its 17 priority circles and mmWave 5G spectrum (26 GHz band) in 16 circles. VIL's total commitment for the spectrum acquired in this auction was 18,800 crore, with annual instalment of 1,680 crore, the company said in a press release.

Analysts at Motilal Oswal Financial Services Ltd note that VIL's 5G spectrum bid will further raise its debt by around 10%.

VIL's total gross debt (excluding lease liabilities and including interest accrued but not due) as of Q1FY23, stood at Rs1.2 trillion. This comprises of deferred spectrum payment obligations, AGR liability that are due to the Government and debt from banks and financial institutions. Net debt stood at Rs1.98 trillion.

In this backdrop, commentary of the VIL management on the external fund raising, tariff hike plans and capital guidance would be crucial for the stock's outlook.

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