Vodafone Idea Should Double its ARPU to Maintain Financial Viability: Analysts

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Vodafone Idea is under heavy financial distress due to the burden of AGR dues. A few days back, Supreme court asked the telcos including Vodafone Idea, to submit an affidavit regarding payment of AGR dues till June 18. In response to the demand of supreme court, Vodafone Idea’s counsel stated that telco giant has been facing difficulty in paying employees salary and meeting operating expenses and it would not be able to secure bank guarantees. As reported by ET Telecom, soon after the statement, Vodafone Idea’s shares were down by 0.75% at 9.32 in early afternoon trade. As stated by various analysts, Vodafone Idea has to double its average revenue per user (ARPU) to Rs 238 from the current levels by FY23 to maintain steady cash flow and meeting operating expenses in case if the supreme court allows deferred payment of AGR dues over 20 years.

Vodafone Idea Reported ARPU of Rs 109 in Fiscal Third Quarter

Vodafone Idea has reported ARPU of Rs 109 in the fiscal third quarter. However, March month earnings have not been reported by the telco. As stated by Goldman Sachs, if the supreme court allows deferred payment of AGR over 20 years, Vodafone Idea will have to maintain Rs 30,900 crore earnings before interest, taxes, depreciation, and amortisation (Ebitda) just to be free cash flow (FCF). Axis Capital stated that raising a bank guarantee of more than Rs 50,000 crore on its own will be a going concern for Vodafone Idea. Axis Capital also noted that the court had given alternate options to Vodafone Idea for improving the fundamentals of the telecom sector.

Vodafone Idea will Face Challenge in Raising ARPU Levels in Short Period

As per analysts, Vodafone Idea will face trouble to double the ARPU to Rs 238 in such a short period. Credit Suisse also stated that the future of telco giant would remain blurry without operational efficiency and equity infusion beyond FY22, when its annual spectrum debt repayment of Rs 15,700 crore would resume, impacting liquidity levels. As noted by Citi Research, Vodafone Idea will need a mix of additional tariff hikes, tower monetisation, equity infusion and rationalisation of taxes to pay back its AGR dues and maintain steady and free cash flow needs from FY23.

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