Vodafone Idea Ltd: Dialing Down Debt with Strategic Management, Bold Expansions and By Powering Innovations – A Call to Financial Freedom!
Vodafone Idea Ltd (Rs.13.14) and Bharti Airtel Ltd (Rs.1578.70) two of India's leading telecom giants, have been grappling with substantial debt burdens for several years. Furthermore, relentless competition in the Indian telecom market, coupled with aggressive spectrum auctions and the financial impact of the pandemic, have significantly strained their balance sheets. Photo: Navbharat Times.
To begin with, among the 3 - prominent players in the sector, Vodafone Idea Ltd (Rs.13.14), often seen as the underdog in the Indian telecom sector, is currently on a thrilling rollercoaster ride of financial and operational transformation. Infact Vodafone Idea is making headlines with its ambitious plans to transform its financial landscape. Despite formidable challenges, Vodafone Idea's strategic maneuvers and debt reduction efforts signal a promising path forward. The company's focus on debt management, coupled with its bold expansion plans and recent tariff hikes, paints a picture of resilience and potential growth.
Recently, major players like Airtel and Jio have increased tariffs by 10-21% across the board. While the two big telcom companies raised entry-level 5G tariff plans by more than 45%, Vodafone Idea has also benefited from the hike in 4G tariff plans, a move that is expected to show its full impact by the end of this quarter and the next, which concludes in December 2024. Notably, Vodafone Idea Ltd will get more room for tariff hike once the 5G is launched.
Incidentally, the company's cash and bank balance stood at Rs.18,150 crore as of June 2024. However, the telecom giant still faces significant financial obligations, with a staggering Rs.2.09 trillion owed to the government. This includes deferred spectrum payment obligations of Rs.1.39 trillion and an adjusted gross revenue liability of Rs.70,320 crore.
With a mix of strategic maneuvers and a sprinkle of resilience, the company is demonstrating how it’s turning a mountain of debt into a launchpad for future growth.
Here’s an insightful look at how Vodafone Idea's debt and recovery strategies are positioning it for a potentially remarkable comeback, especially when compared to its competitor, Airtel.
The Debt Basket: Vodafone Idea vs. Airtel: Vodafone Idea’s debt is like that hefty bag of groceries you’re trying to carry up the stairs after a long day. It’s heavy, it’s daunting, and at times, it feels like it might just drag you down.
As of June 2024, Vodafone Idea is juggling a staggering ₹46,500 crore in bank loans and ₹1,600 crore in optionally convertible debentures. This is in addition to a towering ₹2.09 trillion owed to the government, which includes deferred spectrum payments and AGR dues. But wait, there’s a plot twist!
Despite this mountain of debt, Vodafone Idea is not just surviving; it’s thriving. The company has successfully managed to reduce its bank debt by ₹4,550 crore over the past year and is in the process of securing an additional ₹35,000 crore for expanding its network. This is akin to carrying that bag of groceries up the stairs with a smile, while also managing to fit in a few extra items.
On the other hand while Bharti Airtel's debt situation is not as dire as Vodafone Idea's, it still remains a significant concern. Slowing capital expenditure and improved earnings have brought down the indebtedness of Bharti Airtel by over $1 in the last one year. At the end of June 2024, the telecom major had a net debt of $24.3 billion, which is $1.05 billion less than what it had at the end of the same quarter last year. As of June 2024, Bharti Airtel's total debt was ₹2.102 trillion, not at a meagre figure. But look at the CMP of Rs.2 face value (Vodafone Idea Ltd: Rs.10, FV) share of Bharti Airtel Ltd -- it's whopping Rs.1578.70. On a Rs.10, Face Value scale, the CMP of the shares of Bharti Airtel Ltd is Rs.7893.50, which is ~600 times the CMP of Vodafone Idea Ltd. So, you can imagine the prospects in terms of shareholders value once the Vodafone Idea starts to come out of the death tangle.
Marginal Drop in Subscriber Base: While lot of brouhaha has been going on regarding its loss of subscriber base but a careful analysis says a different story. The company has a total of 210 million subscribers as of June, with the balance coming from 2G and 3G. Its total subscriber base fell marginally from 221.4 million on-year. Interstingly, the struggling telecom carrier recorded 12 consecutive quarters of 4G subscriber additions, taking its 4G base to 126.7 million.
Loss Narrowed and Debt Reduced: Vodafone Idea’s losses narrowed to Rs.6,434 crore for the quarter ended June 2024, from Rs.7,674 crore the year before, while revenues remained almost flat at Rs.10,508 crore as again Rs.10,606 crore on Y - o - Y basis.
Its total debt from banks and financial institutions stood at Rs.46,500 crore and optionally convertible debentures at Rs.1,600 crore as of June 2024. Debt from banks and financial institutions reduced by Rs.4,550 crore during the past one year, compared to Rs.9,200 crore in Q1FY24.
ARPU Improved: Average revenue per user (Arpu), a key metric of profitability, improved to Rs.146, up 4.2% on-year for the No.3 carrier, but it remained flat on a sequential basis. Amongst the telcos, Airtel is the only carrier that has seen its Arpu rise in the June quarter. Surprisingly, the No.1 carrier Reliance Jio’s Arpu was also flat the quarter.
Preference Issue Price: In addition to the FPO, the VI board has also approved a preferential share issue to raise Rs.2,075 crore from an Aditya Birla Group (ABG) entity. The shares were decided to be issued at Rs.14.87 apiece to Oriana Investments Pte Ltd, VI said in a notice to the stock exchange on April 13, 2024; the price which is substantially high than the CMP.
Closure of 3G Networks: The company has converted 3G networks to 4G in several circles. I believe that increased 4G coverage will help arrest market share losses on 4G in the medium term.
VI plans to use 70% of the FPO proceeds to boost 4G coverage (26,000 sites), 4G capacity (40,800 sites) and 5G rollout (22,000 sites); Rs.2,175 crore will be used for paying deferred payments for spectrum to the Department of Telecom and the GST. The balance amount of Rs.18,000 crore will be used for general corporate purposes.
In short, the FPO fund will be used to set up new 4G sites, expanding the capacity of existing and new 4G sites and setting up new 5G sites. This is expected to be a huge money spinner for the company in future.
Airtel’s Debt: The Sibling with a Smaller Bag: Airtel is holding its debt situation with a bit more grace, carrying a more manageable debt load compared to Vodafone Idea. Airtel’s financial situation is akin to having a smaller, more manageable grocery bag. While it has also seen some debt reduction, its numbers are less dramatic compared to Vodafone Idea’s epic saga. Airtel’s debt figures are not as eye-poppingly massive, making their financial narrative a tad more serene but less dramatic.
Vodafone Idea’s Strategic Moves: Plotting the Comeback: Vodafone Idea is not just sitting around waiting for a financial fairy godmother. The company is in talks to secure more debt funding, which will fuel its ambitious ₹55,000 crore capex plan over the next three years. This includes expanding its 4G network and rolling out 5G services. They’re also maneuvering to raise equity through various financial instruments, such as the follow-on offer and preferential share issues, making it clear they’re serious about transforming their financial landscape.
The recent equity raise and planned capex investments are like a high-octane fuel injection into Vodafone Idea’s engine. With these moves, they aim to boost their network capacity, improve coverage, and, most importantly, position themselves as a strong contender in the rapidly evolving telecom market.
Caveat: It may, however, still face a cash shortfall from the second half of FY26 once the ongoing moratorium on the government’s AGR and spectrum repayments ends.
Therefore, it is imperative that unless the government of India exercises the option to convert these dues into equity, this topic will continue to remain a key fuelling uncertainty, both from a cash flow and an equity dilution perspective.
A Glimmer of Hope: Government Relief and Market Impact: Vodafone Idea’s potential relief from the government on AGR dues could be a game-changer. If the AGR dues are reduced by up to 50%, it could significantly lighten the financial load.
I'm optimistic in the sense that with the right combination of tariff hikes in the months to come, government relief, and network expansion, Vodafone Idea could emerge stronger and more competitive.
Conclusion: A New dawn: While Vodafone Idea’s financial journey might resemble a dramatic soap opera with its debt-laden storyline, the company is making commendable strides toward recovery and growth.
Recently, there were media reports saying, the banks have completed the techno-economic evaluation (TEV) of Vodafone Idea and it is in discussions for landing the Rs.35,000-crore additional financing required for its capital expenditure needs.
Also, there were media briefings that, Vodafone Idea has reached out to the Department of Telecom to seek waiver on a financial bank guarantee worth Rs.24,747 crore for spectrum payment due in September 2025. Also, the company opted for a moratorium on AGR payments. The moratorium ends in March 2026. VIL is required to provide bank guarantees at least 13 months prior to the expiry of the relevant moratorium period.
While opting for the moratorium, VIL cleared about Rs.16,000 crore interest obligation on the deferred payment by offering equity in the company to the government.
Thus the government shareholding in VIL fell from about 33% 2023 to 23.80% as of March 31, 2024, after the company raised Rs.18,000 crore through a follow-on public offer (FPO), Rs.7,000 crore between March 2022 and May 2024 from the promoters and issued preferential shares to vendors to clear their dues.
Vodafone Idea (Vi) has also cleared all its statutory dues of around Rs.700 crore, including licence fees and spectrum charges, for the April-June quarter, the 1st time the it managed to meet its obligations over a substantial period.
Shareholders should therefore, view this period as an exciting chapter of transformation and opportunity. With its aggressive expansion plans, strategic debt management, and potential regulatory relief, Vodafone Idea is not just a survivor but a phoenix rising from the financial ashes.
So, buckle up and enjoy the ride—Vodafone Idea is making a comeback that might just surprise everyone!
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Sources:
🏵️Moneycontrol.com and other inputs from the internet and elsewhere.
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