Company performed well on Arpu & revenue growth but subscriber churn high
Though Vodafone Idea performed well on the average revenue per user (Arpu) and revenue growth front during January-March quarter, uncertainty about its viability continues to exist as the Supreme Court has so far not provided any relief on the payment of adjusted gross revenue (AGR) dues to the tune of Rs 58,000 crore. The company acknowledged this fact, stating, “It is to be noted that our ability to continue as going concern is essentially dependent on a positive outcome of the application before the Hon’ble Supreme Court for the payment in instalments and successful negotiations with lenders.”
Another concern for the company during the quarter is the inability to hold on to high paying users with churn rising by 3.3% on a sequential basis.
During the quarter, exceptional items related to AGR dues and one-time spectrum charge led the company to post a wider consolidated net loss at Rs 11,643.5 crore. The net loss was higher compared to Bloomberg’s consensus estimates of Rs 4,610 crore. The company’s performance on most parameters trailed Reliance Jio and Bharti Airtel barring data usage per subscriber, where it beat Jio.
The hike in tariffs helped VIL grow revenues by 6% sequentially and Arpu by 11%, but Bharti Airtel scored better with sequential growth rates of 14.3% and 16% respectively. The company lost 13 million subscribers during the fourth quarter compared to average quarterly loss of 8 million in the second and third quarters.
The exceptional items of Rs 6,141 crore mainly included Rs 1,780 crore on account of AGR dues and 3,890 crore on account of one-time spectrum charge. Credit Suisse said on Wednesday that the long-term viability of VIL would remain under a cloud without strong operational improvement and equity infusion by promoters. The brokerage said, “While we think VIL can manage its cashflow needs till FY22 mainly on account of a two-year moratorium on deferred spectrum debt, we believe the company may find it challenging to service AGR dues in case tenure for staggered payment is short (less than 10 years).”
Vodafone Idea has so far paid only Rs 6,850 crore against its total AGR dues of around Rs 58,000 crore.
Ravinder Takkar, MD & CEO, Vodafone Idea, said “We have achieved our full opex merger synergy target. On the AGR matter, the next hearing is scheduled with the SC in the third week of July. Meanwhile, we continue to actively engage with the government seeking a comprehensive relief package for the industry, which faces critical challenges.”
The company was able to put up a better show on the operational front during the fourth quarter compared to the last few quarters. The impact of prepaid tariff hike undertaken in December 2019 drove the company’s consolidated revenue which increased by 6% to Rs 11,754 crore on a sequential basis, marginally higher compared to analyst expectations of Rs 11,715 crore. The consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) increased a smart 28% to Rs 4,380 crore, aided by increase in Arpu and cost rationalisation, which was much above analyst estimates of Rs 3,864 crore. Consequently, the Ebitda margins came in at 37.3%, sharply higher by 650 basis points.
In terms of key performance indicators, the company witnessed a good 11% increase in Arpu to Rs 121 compared to Rs 109 in the previous quarter led by prepaid tariff hike effective December 2019. Though the VIL’s Arpu remained the lowest in the industry, the tariff hike driven Arpu increase has been more substantial for both VIL and Bharti Airtel during the quarter, compared to that of Jio.
The company’s subscriber base declined to 294.1 million (VLR basis) versus 298 million in the preceding quarter. The company’s total minutes of use on the network during the quarter stood at 6,15,684 million minutes, while the average minutes per user stood at 688, due to a reduction in incoming minutes while outgoing minutes continue to grow. The total data volumes on the network stood at 40,90,337 million MB, while data usage per customer stood at 11,462 MB.
VIL’s gross debt excluding lease liabilities as of March 31, 2020 stood at Rs 1.15 lakh crore, including deferred spectrum payment obligations due to the government at Rs 87,650 crore. Cash and cash equivalents were at Rs 2,480 crore and net debt stood at nearly Rs 1.13 lakh crore versus Rs 1.03 lakh crore in Q3FY20.
Capex spend in Q4FY20 of Rs 1,820 crore was lower compared to Rs 3,330 crore in Q3FY20, as the roll out in Q4 was impacted by Covid-19 with disruptions to equipment supply and the nationwide lockdown.