Vodafone Idea Needs Another Tariff Hike, ARPU Needs to Increase 1.9x : Motilal Oswal

Vodafone Idea has been losing customers for consecutive quarters and years. The telco must look at containing the subscriber churn rate. According to the analysts at Motilal Oswal, the government getting a larger piece of the company than the promoters does not bode well for the telco.

Highlights

  • Vodafone Idea requires another tariff hike, and that too soon, to reach a sustainable level.
  • Vodafone Idea has been losing customers for consecutive quarters and years.
  • Vodafone Idea has been losing subscriber market share to Reliance Jio and Bharti Airtel continuously now.

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Vodafone Idea

Vodafone Idea requires another tariff hike, and that too soon, to reach a sustainable level. The telco’s average revenue per user (ARPU) figure needs to grow at least 1.9x, for which another tariff hike is desperately required, says Motilal Oswal.

The telco has Rs 1,945 billion in debt, for which large-scale capital support will be required. Further, Vodafone Idea would need to invest in the networks to arrest the ongoing market share churn.

Vodafone Idea needs higher revenues in the short term. According to a recent report from Motilal Oswal, the telco requires a 3x jump from its current levels.

Vodafone Idea Needs to Contain Subscriber Churn Rate

Vodafone Idea has been losing customers for consecutive quarters and years. The telco must look at containing the subscriber churn rate.

“Containing the rate of churn should be a priority – even 3QFY22 is expected to see a nearly 4–5m subscriber churn. Until VIL has sufficient funds to invest in the network and compete in the market, the subscriber churn may continue to dilute earnings,” says Motilal Oswal.

The government’s considerable stake ownership should not disturb the company’s operations. Vodafone Idea is not a business interest for the government, and the centre will play the role of a passive shareholder for now.

ARPU Growth for Industry Would Benefit Jio, Airtel a Lot

For Vodafone Idea (Vi) to survive, even the government would want another round of prepaid tariff hikes. But this won’t just help Vi, but also its arch-rivals, including Reliance Jio and Bharti Airtel.

“As a VIL shareholder, the government would realize that there is no option but to increase the ARPU (which augurs well for both Bharti AND RJio) if the entity is to survive beyond four years. Thus, there could be repeated tariff increases,” Motilal Oswal added.

Vodafone Idea has been losing subscriber market share to Reliance Jio and Bharti Airtel continuously now. According to the analysts at Motilal Oswal, the government getting a larger piece of the company than the promoters does not bode well for the telco.

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