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Reliance Jio joined Airtel India as India’s number one telco. Vodafone continues to lose subscribers, even in partnership with Idea. It has lost six million subscribers during the July-September quarter as it lags behind its rivals in 5G rollout. The telco’s problems have worsened as stock prices are below Rs 10 per share. In addition, the government has stopped the conversion of Rs 16,000 crore of debt to the telecom department into the state stake.
How did this happen?
Vodafone has been instructed by the government to roll out 5G services first and get investors on board before the Department of Telecom can convert debt into equity. The accrued interest on deferred fees that Vodafone, Airtel, and other telcos have refused to pay for many years before they were instructed by the Supreme Court is to comply with the order. The apex court permitted staggered payment of AGR fees. Airtel paid for four-years in advance while Vodafone Idea had a four-year moratorium.
Airtel survived the storm, Voda Idea faces turbulence
Airtel, which has gained subscribers from Vodafone, decided to pay the amount rather than offering a stake in the government for the interest. In lieu of the more than Rs 16,000 crore interest, Vodafone Idea, an infirm Vodafone Idea, decided to issue a 33% share to the DoT.
Voda-Idea’s multiplicating problems
Vodafone Idea, which is currently third in private telcos due to its massive debt load, has no other options than state-owned BSNL. Although Vodafone Plc, its parent company, had previously refused to inject more funds into the Indian ventures, it has now agreed to invest Rs 500 million this year. Vodafone Idea subscribers were also at risk of losing their services as tower infrastructure provider Indus Towers demanded that it pay up or lose access.
Are there more competitors in the future?
Indus Towers agreed to terms that Vodafone Idea made more flexible. This includes 100% payment of bills after December 31, 2022 and the remainder of the dues being paid within the first six months in 2021. The interest on AGR dues adds to the debt pile. Vodafone has yet to set a date for 5G rollout while Airtel, Reliance Jio and others have launched the service in 8 and 13 cities, respectively.
Vodafone Idea is losing ground. Fast-growing conglomerate Adani acquired a license to full-fledged telecom services and even a small portion of the 5G spectrum. Vodafone might not need another player in India’s telecom market right now.
Vodafone Idea was informed by the department of telecoms (DoT), that 5G services must be launched and investors should be on board before the government converts Rs 16,130 crore in deferred interest payments to equity.
This development could put the telecom operator in a difficult spot. It has been banking on the government first turning the interest accrued from dues into equity. The former would have a 33% share in the company. This would provide comfort to potential investors and help in the fundraising exercise.
“We don’t know why this (equity-conversion) isn’t happening. When asked about the delays in conversion of dues to equity by the government, Akshaya Moondra CEO, Vodafone Idea, stated that the government had taken some time.
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“From our perspective, we had converted in January. We also had a conversation with DoT. They had sent us a March letter, which confirmed the amount of the conversion. This was in accordance between DoT’s and our April month. Moondra stated that DoT has not communicated with us in this regard.
According to him, the main reason for 5G rollout delays is the inability to raise funds. “We are prepared with our plans to roll out 5G. We have engaged our vendors. He said that once the funding is available, we will be able “to kind of rollout and execute the services quite quickly.”
Vodafone Idea is currently the only operator that has not yet introduced 5G services or given a timeline.
The company stated earlier in the week that the government can convert the debt into equity regardless of the share price being below Rs 10.
Sources in the DoT claim that the government has provided cash flow relief for the telecom operator. However, the latter should do more by bringing in investors to start the rollout 5G services.
An official stated that “we have already given a tremendous relief to the Telco through telecom sector reform in form of moratoriums on adjusted gross revenue, spectrum-related dues and spectrum-related dues. Now we want the company share its roadmap for fundraising and 5G rollout plans,”
Vodafone Idea wants to raise Rs. 25,000 crore but the promoters are able to inject only Rs 4,940 crore.
Due to increased network operating costs and finance costs, the company’s July-September quarter net loss was Rs 7,595.5 crore. The company’s consolidated revenues increased nearly 2% sequentially, to Rs 10,615 million due to an increase in 4G subscribers as well as an increase in the average consumer spends on its network.
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Vodafone Idea’s auditors highlighted in the September quarter earnings report that the company’s financial performance had impacted its ability generate cash flows to pay its liabilities.
Vodafone Idea’s total gross debt at the end of the July-September quarter was Rs 2.20 trillion. This excludes lease liabilities and interest accrued but unpaid. It also includes deferred spectrum payments obligations of Rs 1.36 trillion, AGR liabilities due to the government of Rs 68.590 crore, and Rs 15.080 crore from banks and other financial institutions.
The telecom operator purchased spectrum in the 5G spectrum auctions that concluded at the end July. It was worth Rs 18,799 crore. DoT has received the first installment of Rs 1,679 crore from the company.
Experts believe that the cash-strapped operator of telecoms, already suffering from significant subscriber churn, could experience more churn if 5G rollout is delayed.
According to data from India’s Telecom Regulatory Authority, Vodafone Idea lost more than 30,000,000 wireless customers in the period up to August. The company had a 22% market share as of August-end. Jio and Airtel were at 36.5%, 31.6% and respectively, at 36% and 31.6%, respectively.03
Goldman Sachs reduces Vodafone Idea target; recommends selling as there is an estimated downside of 70%
Goldman Sachs has reduced its target for Vodafone Idea from Rs 2.60 per share to Rs 2.50 per shares and recommended that this stock be sold. Technical analyst Nilesh Jain also agreed with the recommendation.
Vodafone Idea shares traded at Rs 8.40 on NSE. They were down almost 2 percent on Friday, after the September quarter results of the company failed to impress. The net loss for July-September was Rs 7,595.50 crore, which was sequentially up 4 percent.
Other key metrics such as revenue, EBITDA and ARPU showed significant growth for the company.
Technical View
Analyst Nilesh Jain sees another downside to this stock due to the stock’s weak chart structure. He anticipates that prices will fall between Rs 8 to Rs 7.50. He recommended a Sell-on-Rise strategy for Vi shares.
At 12:50 PM, 4.44 million shares traded. The company’s total market capital is Rs 26,979,000.83 crore.
According to the company’s filing to the exchanges, this was the fifth consecutive quarter of revenue growth and 4G subscriber increase. The net debt was Rs 220 130 crore, which includes deferred spectrum payments obligations of Rs. 1,366.5 billion, including Rs. 172.6 billion towards spectrum purchased in recent spectrum auction and AGR liability Rs. 685.9 Billion due to the Government and Rs. 150.8 billion. The cash & cash equivalents was Rs. With that net debt of Rs.1.9 billion, 1.9 billion was available. 2,201.3 billion.
We will continue to work hard on increasing our high-speed broadband network coverage and bandwidth. We continue to refarm 2G/3G spectrum in order to increase our 4G coverage, capacity, and exchange filings. Our core and transmission network will be upgraded. We added 8,500 4G sites while closing down 19,000 3G sites. According to quarterly earnings exchange filings, our total broadband site count was 444 228 as of September 30, 2022.”