Vodafone Idea, the third largest wireless operator in India continues to witness subscriber losses but at a reduced pace, Motilal Oswal Financial Services said in a report on Monday. The Indian diversified financial services firm said that the operator lost a “mere” two million subscribers in the third quarter of the current financial year. Motilal Oswal said that the active subscriber base of Vodafone Idea “continued to decline, but at a slower pace” as the operator lost 4.6 million active subscribers in its third quarter. In the previous quarter, Vodafone Idea subscriber base declined by 8.1 million while its active subscriber base declined by 11.8 million.
Vodafone Idea Remains Weakest Telecom Operator Says Analyst
Vodafone Idea on Saturday reported its third quarter financial results registering an 1% increase in its revenues to Rs 10890 crores. The third largest wireless operator in India reported a net loss of Rs 4532 crore in its third quarter as compared to Rs 6438 crore in the previous year quarter. Vodafone Idea highlighted that it has 269.8 million subscribers as of December 31, 2020, with its active subscriber base declining to 256.6 million. The operator also said that the average revenue per user (ARPU) in its third quarter of the current financial year hit Rs 121 as compared to Rs 119 in the previous quarter.
ICICI Direct, a financial product distributor said that the churn rate has reduced to 2.3% in the third quarter with the firm believing that it is “due to network integration completion.” In its report on Tuesday, ICICI Direct said that the capital expenditure at Rs 970 crore was “underwhelming, given the balance sheet stress.”
“VIL (Vodafone Idea) remains the weakest private telco,” ICICI Direct said in a report on Tuesday. “While AGR dues payment extension was a short-term breather, its survival hinges on quick capital infusion and tariff hike/floor tariff implementation.”
The Supreme Court in early September 2020, provided a 10-year timeframe for the telecom operators to pay their adjusted gross revenue (AGR) dues. Vodafone Idea on Saturday highlighted that the next instalment would be payable only by March 31, 2022.
Meanwhile, Ravinder Takkar, CEO of Vodafone Idea in the third quarter earnings call on Monday said that the operator will not wait for others to increase the tariffs.
“We believe that we are in the best position as the company to raise prices and increase tariffs with how much we need, we will take those steps and actions,” Takkar said in the earnings call on Monday.
Vodafone Idea Requires 70% Increase in ARPU
In September, Vodafone Idea unveiled its new brand Vi by unifying its two brands with the operator also announcing that it has completed the “world’s largest integration.” The operator on Saturday released its quarterly report with Vodafone Idea highlighting that it has added 12,000 4G sites “primarily through refarming” of its 2G and 3G spectrum to “expand” its 4G capacity.
“We continue to expand our LTE 900 in select locations, including through dynamic spectrum refarming, to improve customer experience,” Vodafone Idea said in its quarterly report.
However, Motilal Oswal said that Vodafone Idea witnessed a “mere” 13% improvement in its ARPU between the second quarter of the previous financial year to the third quarter of the current financial year. In the same period, the financial services firm highlighted the telecom industry witnessed a 25% increase in the ARPU. Motilal Oswal said that the “ARPU increase translated into limited revenue” benefit as the operator witnessed a “huge subscriber churn owing to its low network investments.”
“However, the churn has reduced significantly,” Motilal Oswal said in its report on Monday. “VIL’s weak liquidity position restricts its capability to invest in network improvement, evident from reducing capex intensity.”
Crucially, Motilal Oswal said that the operator requires an 70% increase in its ARPU in the upcoming quarters to “fulfill its interest obligations, capex, AGR liabilities, and spectrum liabilities in FY23.” The financial services firm said that the 70% increase in ARPU is based on its “workings” under the condition that the operator doesn’t witness further subscriber churn.
“The significant amount of cash required to service its debt, leaves limited upside opportunity for equity holders, despite the high operating leverage opportunity from any source of ARPU increase,” Motilal Oswal said.
Vodafone Idea board had earlier approved fund raising of up to Rs 25,000 crores with the operator on Saturday highlighting that it is in “active discussions with potential investors.”
“The need for capitalisation is of paramount importance mainly due to its lagging spends on network and relative market share loss,” ICICI Direct said.