Vodafone Idea: Armed with Rs 60,000 crore war chest, telco to focus on revenue per user

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Updated: February 22, 2019 7:30:44 AM

Vodafone Idea (VIL), which is building its war chest with nearly Rs 60,000 crore — a mix of equity infusion, monetisation of Indus Towers' stake, cash balance and cumulative EBITDA – will be able to keep the company adequately funded for two years, but the focus on Arpu improvement will remain.

After infusion of nearly Rs 60,000 crore, Vodafone Idea says Arpu improvement to remain in focusAfter infusion of nearly Rs 60,000 crore, Vodafone Idea says Arpu improvement to remain in focus

Vodafone Idea (VIL), which is building its war chest with nearly Rs 60,000 crore — a mix of equity infusion, monetisation of Indus Towers’ stake, cash balance and cumulative EBITDA – will be able to keep the company adequately funded for two years, but the focus on Arpu improvement will remain.

In a recent analyst meet, VIL said it expects to achieve cumulative EBITDA (earnings before interest, tax, depreciation and amortisation) of `20,000 crore in the next two years. However, this, coupled with equity infusion of `25,000 crore, realisation of around `5,000 crore from monetisation of Indus Towers’ stake and cash balance of `13,000 crore, will keep the merged company adequately funded only for the near term, while the high leverage will remain a concern, according to analysts.

“Despite the huge fund raise and the estimated EBITDA increase to `12,600 crore by FY21 (from `4,550 crore currently – 3QFY19 annualized run-rate), Vodafone Idea may have only eight quarters of funding, with the net debt-to-EBITDA ratio likely to remain at a steep 8.4x,” analysts at Motilal Oswal observed in a recent report.

The company told analysts that while taking a tariff hike in the current market situation is unlikely, its initiatives on network synergies, minimum recharge voucher programme and accelerating shift from 2G to 4G would drive the EBITDA growth.

Apart from discontinuing recharge plans of below `35 denomination, the company has decided to substantially increase the cost of acquiring new SIM connections and make it uniform across all the 22 circles, FE had reported on February 7.

Earlier, the cost of acquiring a new connection was paltry and varied across circles. With the new move, a customer will now have to spend `76 in acquiring a connection, besides paying a minimum recharge of `35 for 28 days validity. This means an upfront payment of `111.

Though the minimum Arpu plan is having a net-positive impact with month-on-month improvement in revenue in December as well as January, it lags way behind peers.

Vodafone Idea remains below Bharti and Jio who reported Arpus of `104 and `130, respectively, during the October-December quarter.

“While the weeding out of low-value customers is expected to support Arpu, the same is going to reflect in ensuing quarters post integration across all circles.

Slow data volume traction is also denting overall performance of the company,” analysts at Edelweiss Securities noted.

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