The government’s decision to convert Vodafone Idea’s spectrum auction dues amounting to Rs 36,950 crore into equity may do little to change the fortunes of the company, said analysts.
The reason: The telco will find it very difficult to expand its subscriber base and revenue market share due to the lag in network upgrade, and the widening gap in its key performance indicators (KPIs) with Bharti Airtel and Reliance Jio.
Data compiled from the telco’s quarterly reports indicate that it has failed to stem the subscriber churn – overall and active users – and/or significantly improve data consumption metrics on its network since the first round of debt-to-equity conversion by the government.
In February 2023, the government had picked up a 33% stake in the distressed telco by converting part of its spectrum and AGR (adjusted gross revenue) debt (Rs 16,100 crore) into equity.
Since then, Vodafone Idea has lost 26.1 million subscribers and 31.4 million active users between Q4FY23 and Q3FY25. Its blended churn has increased 0.7%, while both average and total data consumption on its network has increased less than 1%.
“While tariff hikes in July 2024 contributed to a heightened churn, even in the quarters before that, Vi was losing subscribers. The lag it has from its peers is too wide for an effective turnaround. These relief measures are too little, too late at this point,” an analyst said.
The second round of debt-to-equity conversion by the government is being hailed as a positive for the telco by analysts and experts.
“We view this as a major display of support by the government in a very timely manner, which should provide significant cash-flow relief to Vi in the next three years and help it complete its bank debt raise,” Citi Research said in a report.
The brokerage has reiterated its buy/high risk rating, citing the government’s move to raise its stake in Vi to 48.99% as a key balance-sheet boost, while setting a target price of Rs 12 per share ― implying a 76% upside from the stock’s last close.
The telco has outlined a capex of Rs 50,000-55,000 crore over the next three years to get its network upgraded, and effectively launch 5G services commercially. Its capex guidance for FY25 as per the December quarter earnings call is Rs 10,000 crore. It has been in discussion with banks for raising debt to fund capex plans.
Concerns over operational KPIs remain, given that despite the government support, the customer churn could not be stemmed.
Vodafone Idea chief executive Akshaya Moondra indicated that the telco has been witnessing an improvement in its data consumption metrics from January when it had commenced piloting 5G in key circles like Mumbai. He said migration to BSNL post tariff hikes in July has stopped. However, the company has not given any guidance on its 5G pricing strategy, which would be material to improving the average revenue per user (Arpu).
Peers Airtel and Jio are yet to monetise consumer 5G, and are making efforts towards this end using the fixed wireless access route to expand home broadband footprint.
So far, the Vodafone Idea’s Arpu growth has come due to its reducing subscriber base and tariff hikes taken last year, analysts said.