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Vodafone Idea sails through Q4 but the task ahead is tough

By Vineetha Sampath, Harsha Jethmalani
Without any meaningful fundraising, VIL could risk losing market share further (Mint)

However, despite the improvement in some metrics, VIL’s problems are far from over. In a post-earnings call, the company’s management told analysts that it expects Arpu to rise to 200 in the short term. However, analysts said this would require more price hikes. For now, though, most of the flow-through of the price hikes has already taken place, said the management. “This is disappointing as we were expecting some more benefits of the tariff hikes to occur in Q1FY23 as well. As such, despite tariff hikes, the revenue growth has been sub-optimal," said an analyst requesting anonymity. VIL’s Q4 revenues grew sequentially by 5.4%. “If the benefits of price hikes are indeed over then the company will struggle at the current revenue of about 38,500 crore (in FY22) unless the subscriber base improves significantly," the analyst said.

Competitor Reliance Jio reported sequential revenue growth of 8%in Q4. Bharti Airtel is also expected to report better growth when it releases its earnings on 17 May.

Against this backdrop, VIL’s liquidity, which has been a worry for investors, is back in the spotlight. At a time competitors Jio and Airtel are investing heavily in capacity additions, VIL’s inability to raise adequate funds means that its subscriber churn could get more severe. The company’s management told analysts that its network investments were impacted by cash flow constraints and it is in talks with banks and investors to gather funds. That said, the management did not elaborate about VIL’s capital expenditure plans and added that capex would depend on the amount of funds it raises.

Meanwhile, it added 1 million customers to its 4G subscriber base in Q4. “VIL has done a decent job by holding onto its 4G subscriber base. However, it will be an uphill battle hereon as peers are laying out 5G plans. There will be a struggle to hold on to its high valued customers. Though the company has put up a fight in Q4 and managed rather well with the available resources, we remain concerned about the company’s flawed capital structure," said Vivekanand Subbaraman, analyst at Ambit Capital Pvt. Ltd.

As on 31 March, VIL’s net debt was 1.9 trillion. VIL’s promoters recently pumped in 4,500 crore into the company. Analysts point out that while the government’s intervention does provide a lifeline to the company, to remain competitive, infusion of additional funds is crucial to catch up with peers not only on 4G and data coverage, but also in the upcoming 5G spectrum auction.

In Q4FY22, VIL’s capex stood at 1,210 crore, higher than the 1,050 crore in Q3. However, this is hardly enough. Aditya Bansal, analyst, Nomura Financial Advisory and Securities (India), said in a report on 10 May: “VIL’s FY22 capex was about 38% of Bharti’s India wireless business 9MFY22 capex."

Meanwhile, so far in this calendar year, the VIL stock has declined by almost 44% mainly because of concerns around fundraising. Unless that changes for the better, the stock is unlikely to find favour with investors. “Without significant fundraising, we think VIL’s network investments and 5G rollout would remain constrained, at least in the near term, leading to further market share erosion," according to Bansal.

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