Vodafone Idea (Vi) was quite desperate to get the tariff hikes going. The telco was just waiting for Bharti Airtel to make the first move. Post the tariff hikes; analysts are positive that Vi’s revenues are going to grow. However, the subscriber churn rate is also expected to be higher. In a note, Motilal Oswal Institutional Equities said that Vi’s average revenue per user (ARPU) figure would grow to Rs 128 with the help of the tariff hikes. This would be a huge jump for the telco’s ARPU, which was Rs 109 for the September quarter. The tariff hikes will come into effect from November 25, 2021.
Vodafone Idea Needs Funding to Service Capex and Debt
According to the analyst, the telco would require funding to be able to meet cash requirements. Vodafone Idea has an estimated cash requirement of Rs 80 billion - Rs 100 billion for paying bank debt and capex. With the tariff hike, the EBITDA could potentially rise to Rs 95 billion.
However, if there is a higher subscriber churn rate and a steep market share loss, it could derail the company’s plan of generating cash through services. Thus, Vodafone Idea is in need of immediate funding as it has repayments of Rs 64 billion between December 2021 to March 2022.
Because of the weak liquidity position, the telco will have to limit investments in networks which would ultimately result in a higher subscriber churn rate. However, huge funding is expected to come in from the two promoters of the telco, including the Aditya Birla Group (ABG) and the Vodafone Group Plc.
With tariff hikes and relief measures in place, Vodafone Idea has got everything the way it wanted. The telco needs to now find ways to retain customers and add new ones so that it can finally start making profits.
Even Reliance Jio plays a key role here as if Jio doesn’t go for tariff hikes, it would reduce the impact of tariff hikes for Vi and Airtel to a certain degree.