Vodafone Group, a leading telecommunications company in Europe and Africa is only offering “practical support” to Vodafone Idea, says Nick Read, chief executive officer at Vodafone Group. Read in the first-quarter earnings call on July 23, 2021, said that Vodafone Idea, the third-largest wireless operator in India, is in a “difficult situation that they are trying to navigate.” However, Read said that the parent Vodafone Group will “not” be “putting any additional equity into India.” Vodafone Group earlier in the day had reported the first-quarter results of its current financial year, with the England based group highlighting that its service revenue increased 3.3% year-over-year (YoY).
Vi Needs 87% Increase in ARPU Say Analysts
The group said that the increase in the service revenue was recorded “across both consumer and business segments.” Further, Vodafone Group said that its roaming and visitor revenue increased 56% YoY but that it is 54% lower than the pre-pandemic levels.
“Really, India is a question for Vodafone Idea,” Read said in the first-quarter earnings call. “But within the going concern statement, they highlighted very clearly, they are dependent as a going concern on refinancing debts that are coming June in terms of monetisation of assets, in terms of government support, so, AGR or floor pricing, etc., and raising funds.”
In August 2018, Vodafone Group announced the completion of the merger between Idea and Vodafone India, with the Vodafone Group holding 45.2% in the combined entity. It was also highlighted that the Aditya Birla Group (ABG) will hold a 26% stake in Vodafone Idea.
“So, I mean, it is, as you say, a highly stressed situation, a difficult situation that they are trying to navigate,” Read said in response to an analyst question on what strategy Vodafone Group has for Vodafone Idea. “I mean, we as a group try to provide them as much practical support as we can but I want to make it very clear, we are not putting any additional equity into India.”
The Supreme Court in mid-July rejected the applications moved by Vodafone Idea, Bharti Airtel and Tata Teleservices seeking recomputation of the adjusted gross revenue (AGR) dues. The apex court decision means that Airtel and Vodafone Idea AGR dues will stay at Rs 44,000 crores and Rs 58,300 crores respectively. In comparison, Airtel and Vodafone Idea calculated the AGR dues to be Rs 13,000 crores and Rs 21,500 crores respectively.
Edelweiss Research, a leading domestic institutional brokerage house in a report on July 23, 2021, said that the telecom market in India is “moving towards a duopoly.”
“Any relief in AGR dues would have abated VI’s (Vodafone Idea) debt woes and facilitated a much-needed fund-raising,” Edelweiss Research said in its report.
The firm said that the balance sheet of Vodafone Idea is “precarious” and highlighted that the third-largest wireless operator in India sought a government nod to raise Rs 15,000 in the capital.
“But in absence of any announcement, we see it as an ‘enabling approval’ to avoid delays once investors come on board,” Edelweiss Research said. “According to our estimates, VI must jack up ARPU by 87% to meet its debt obligations.”
Bharti Airtel, Reliance Jio “Adequately Funded” Says Analyst
The firm said that Airtel and Reliance Jio are both “adequately funded” and that it “gives them an opportunity to grab market shares.”
“Hence, we believe that Bharti and RJio will be ‘net beneficiaries’ of the challenges VI is staring at,” Edelweiss Research said.
The firm highlighted that a “favourable judgement” would have further boosted Airtel but that its “balance sheet is anyway strong enough to bear the AGR burden.”
“With strong 2G and 4G networks, it is a clear beneficiary of potential market share gains as VI loses out,” Edelweiss Research said.
Further, the firm said that the largest wireless operator in India, Reliance Jio, enhanced its spectrum portfolio to upgrade its capacity for new users arriving on its network.
“Although we expect RJio to be a net beneficiary of market share gains (from VI), the market is overestimating its digital capabilities in our view,” Edelweiss Research said.
It has to be noted that Airtel in the past week had made “upgrades” to its retail and corporate postpaid plans to “serve evolving” user needs. The minimum plan for corporate users on the Airtel network is now priced at Rs 299, up from Rs 199. Similarly, the operator also increased its retail postpaid add-on pack to Rs 299, up from Rs 249 while its Rs 999 plan serves as its “only family postpaid plan.” Multiple analysts have been expecting Vodafone Idea to also tweak its tariffs to match Airtel’s price hike.