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Vodafone Idea could bring in a strategic investor to strengthen its finances with the Supreme Court allowing it 10 years to pay AGR dues. Vodafone Idea has to pay ₹53,000 crore to the Centre, which means it will have to fork out ₹5,000 crore a year just to pay past AGR dues.
In addition, the operator will have to fund its current payments towards licence fees and spectrum usage charges besides capital expenditure towards network rollout.
There are multiple headwinds facing the operator. Vodafone Idea is still playing catch-up with Reliance Jio and Bharti Airtel when it comes to 4G network rollout. Even if the ₹53,000-crore AGR dues have to be paid over 10 years, the operator’s balance sheet will be too highly leveraged to make fresh investments into network rollout or acquiring fresh spectrum.
It is expected that the Centre will hold a 5G spectrum auction sometime next year and, going by the existing reserve price for the airwaves, Vodafone Idea may find it difficult to participate in a bidding process in view of the already large debt on its books.
In this scenario, there are limited options for the operator. One option could be to increase the tariff further so that it gets an average revenue per user (ARPU) of around ₹300 per month. That’s 1.5 times what it gets at present. That looks unlikely given that rival Reliance Jio has managed to improve its overall debt position and is under no pressure to increase tariffs.
Beyond FY22 ,when its annual spectrum debt repayment of ₹15,700 crore resumes, the company’s viability will remain under a cloud without strong operational improvement and significant equity infusion. It reported a staggering ₹73,878-crore net loss in fiscal ended March 2020 — the highest ever by any Indian firm. It also has debt of over ₹1 lakh crore on its books.
Vodafone Idea’s revenue market share has fallen sharply to 21 per cent during the June quarter, nearly half of what it was in FY17. Market share shifts continued towards Reliance Jio and Bharti Airtel with both operators gaining 470 basis points (bps) and 200 bps market share versus their FY20 levels to 38 per cent and 33 per cent, respectively.
Vodafone Idea’s revenue market share losses are no longer just being driven by its weaker markets. During Q1, 60 per cent of Vodafone Idea’s 5.8 percentage point (ppt) market share loss came from its top-3 markets that form 35 per cent of its revenues. The company lost 10 ppt market share in Maharashtra, 13 ppt in Kerala and 8 ppt in Gujarat, driven by a 22-47 per cent quarter-on-quarter decline in net revenues in these markets.
Notably, Reliance Jio has seen the highest growth in each of these markets. The operator’s balance sheet is highly leveraged to make fresh investments into network rollout or acquiring fresh spectrum.
The only viable option for Vodafone Idea then could be to sell an equity stake to a financially strong investor. Now that there is clarity over AGR payments, the operator can initiate discussions with interested players.