Vodafone Idea's plan to raise funds through a mix of equity and debt is "unlikely" to restore its competitive position and reverse subscriber losses, as the amount would not be sufficient for capex, it argued.
The Supreme Court’s decision to allow telcos to pay outstanding dues over 10 years will not be enough to help Vodafone Idea to stabilise its position, while Jio and Airtel are expected to strengthen their market shares through subscriber gains, Fitch Ratings has said.
It further said another tariff hike of at least 20 per cent is probable in the next 12 months. Vodafone Idea’s plan to raise funds through a mix of equity and debt is “unlikely” to restore its competitive position and reverse subscriber losses, as the amount would not be sufficient for capex, it argued.
“We believe Vodafone Idea will gradually lose market share given its weak balance sheet and limited financial flexibility,” a Fitch release said, adding that Jio and Bharti, on the other hand, are expected to gain market share on the SC verdict.
Industry tariffs are expected to rise as users adopt higher-price 4G plans. “We expect Jio and Bharti to increase their combined revenue market share to 75-80 per cent from around 70 per cent in the next 12-18 months, at the expense of Vodafone Idea, which will likely lose 50 million-70 million subscribers in the next 12 months; it lost about 155 million subscribers in the last nine quarters,” it said.
Reliance Jio could snap up more than half of Vodafone Idea’s subscriber losses, with the balance going to Bharti, the release added. While Jio had posted Earnings before Interest Tax Depreciation and Amortisation (EBITDA) growth of 55 per cent, and Bharti reported Indian mobile EBITDA growth of 35 per cent in the first quarter of the current fiscal, Vodafone Idea’s numbers remained stagnant, covering only half of its interest cost.
“Vodafone Idea’s auditor expressed material uncertainty over the company’s ability to continue as a going concern, which, the auditor said, depends on successful negotiations with Vodafone Idea’s lenders to waive their rights to repayment after breaches of covenants under its bank loans,” Fitch Ratings said.
At June end, it had a cash balance of USD 470 million (about Rs 3,454 crore) which was well short of short-term debt maturities and guarantees of USD 3.6 billion (about Rs 26,450 crore). “It has so far paid about USD 1.1 billion of its total unpaid dues of USD 8.9 billion, and it will need to pay around USD 1-1.2 billion a year during FY2021-2031,” it said.
The Supreme Court’s latest ruling will allow Bharti Airtel to pay the remaining outstanding dues in 10 annual payments of about USD 600 million (about Rs 4,410 crore) starting March 2022 instead of a lump sum. Bharti’s FY21 Indian mobile EBITDA is likely to improve by 30-40 per cent on the back of improved margins following tariff hikes and 5-6 per cent subscriber growth.
Fitch expects Jio’s FY21 mobile revenue to increase by 45-50 per cent, driven by higher monthly average revenue per user (ARPU) and subscriber addition of about 40 million. Vodafone Idea – whose ARPU is about 30 per cent, lower than Bharti’s – could raise tariffs to improve cash flows. As it is, all three telcos had simultaneously increased tariffs by an average of 30 per cent in December 2019.
“We estimate industry ARPU to grow by around 10 per cent in FY21, as users upgrade gradually to higher-tariff 4G price,” it said, citing Bharti’s stance that industry’s monthly ARPU needs to touch about Rs 200 and eventually Rs 300 for a sustainable business.