Vodafone Idea: Better cash flows must for survival

Vodafone Idea on Thursday once again posted a big loss of Rs 7,203 crore in the July-September quarter, wider than Bloomberg consensus estimate of Rs 5,193.73 crore. If the losses were narrower than the preceding quarter’s Rs 25,467 crore, it was because this time there was no provisioning for the AGR dues with the company having made it fully by the end of the June quarter.

Operating metrics continued to deteriorate as the telco lost 8 million subscribers and its blended churn rate rose to 2.6% against 2% in the preceding quarter.

Though Vodafone Idea has received a relief of sorts from the Supreme Court which has allowed it to pay its remaining nearly Rs 50,000 crore of AGR dues in instalments spread over 10 years, the company is still not out of the woods. Its board has approved a fundraising plan of Rs 25,000 crore, but there has been no update on the timing and the source of funds yet.

Indicating that its financial condition continues to remain precarious, the company said its ability to continue as a going concern is essentially dependent on successful negotiations with lenders and its ability to generate the cash flow that it needs to settle/refinance its liabilities and guarantees as they fall due.

With the resumption of economic activities after the lockdown, the company was, however, able to improve its average revenue per user (Arpu) by 4.3% quarter-on-quarter at Rs 119, which was largely in line with analysts expectations. Still it’s far behind Bharti Airtel’s Rs 162 and continues to be lowest in the industry.

Vodafone Idea continued to lag on the operational front too. The impact of prepaid tariff hike undertaken in December 2019, which had driven the company’s revenue increase in the March quarter, remained ineffective in June quarter, and there was no significant impact in the September quarter as well. The revenues were up a marginal 1.2% on a q-o-q basis at Rs 10,791 crore, a tad below analyst expectations of Rs 10,923 crore.

The Ebitda also inched up marginally by 1.31% sequentially at Rs 4,152 crore on account of higher revenue and cost savings, but was partially offset by higher subscriber acquisition costs as gross additions, which were impacted by closure of outlets during peak of lockdown, improved during the quarter. Ebitda margins came in at 38.5%, an increase of 10 basis points q-o-q.

The company’s subscriber base declined to 271.8 million versus 279.8 million in the preceding quarter. It added 1.5 million 4G subscribers versus 14.4 million added by Bharti Airtel.

The company’s total minutes of usage on the network during the quarter stood at 5,55,000 million minutes, a decline of 4% q-o-q, while the average minutes per user at 673 minutes remained flat sequentially. After registering good growth in data volumes in the last two quarters, VIL reported a 4% decline in data volumes which stood at 43,40,000 million MB. The company said it was on account of data usage normalisation compared with the significantly higher volumes witnessed during the early months of lockdown. Data usage per broadband subscriber fell a sharp 9% q-o-q at 11,978 MB per month, which was much lower compared with Airtel’s data usage per subscriber of 16,409 MB.

Ravinder Takkar, MD & CEO, Vodafone Idea, said, “While we continue to face Covid-19 induced challenges, Q2FY21 showed signs of recovery with a gradual improvement in economic activities. We are executing on our strategy and our cost optimisation exercise has already started to yield incremental savings. We have also initiated a fund raising exercise to support our strategic intent. Further, we continue to interact with the government seeking long term solutions to the critical challenges, which the industry faces”.

VIL’s gross debt (excluding lease liabilities) as of September 30, 2020, was Rs 1.16 lakh crore, including deferred spectrum payment obligations due to the government of Rs 92,310 crore. Cash & cash equivalents were Rs 1,430 crore and net debt stood at Rs 1.14 lakh crore against Rs 1.15 lakh crore in Q1FY21.

Capex spend in Q2FY21 of Rs 1,040 crore, improved compared with`600 crore in Q1FY21.

The company said after successfully achieving targeted merger opex synergies of Rs 8,400 crore, it has embarked on a cost optimisation exercise across the company in line with the evolving industry structure and business model. The company plans to achieve Rs 4,000 crore of annualised cost savings over the next 18 months through this exercise. “As of Q2FY21, we have already achieved about 25% of the targeted annualised cost savings,” the company said.