Struggling telecom major Vodafone Idea has seen a sharp decline in operational performance in the April-June quarter while much of the focus remained on Adjusted Gross Revenue (AGR) dues. This poses a significant challenge to the company of regaining competitiveness, and massive balance sheet repair could be needed, said Kotak Institutional Equities in a report. Shares of Vodafone Idea have jumped 12% since Friday to now trade at Rs 9.1 per share. However, AGR-dues payment verdict by the Supreme Court remains the key overhang for the stock and the company.
Vodafone Idea’s net operating revenues slipped 9.3% on-quarter basis and 5.4% on-year basis to 10,659 crore. Average Revenue Per User (ARPU) has also been falling for Vodafone Idea, now at Rs 114 against Rs 121 in the previous quarter. Kotak Institutional Equities in a report said that the numbers were hit by the coronavirus which affected customers and a weakening subscriber mix for the telco. Vodafone Idea’s net loss of Rs 25,460 crore was also aided by more provisioning in the wake of the AGR dues.
“Crossing the AGR hump would be a big step, for sure, but only into bigger challenges. Vodafone Idea is staring at an extremely tough scenario in FY2023E once the moratorium on deferred spectrum pay-outs is lifted,” the report said. Analysts equivocally believe that Vodafone Idea needs to increase its ARPU. The telecom operator said that the industry needs ARPU of Rs 230-250 to be able to generate reasonable return on capital. End of period subscribers base stood at 279.8 mn, a decline of 11.3 mn subs from the previous quarter. 4G subscriber base declined 1 mn on-quarter basis to 104.6 mn while data usage per data subscriber grew around 13%. Kotak Equities has suspended the rating of Vodafone Idea as it awaits the AGR verdict.
Going forward, Vodafone Idea is looking to increase its focus on top-16 circles, which accounts for 87% of the company’s revenues. “We believe that the strategy of not investing in less-priority circles is a risky one when competing against two strong, high-quality pan-India competitors. If not executed well, this could accelerate the downward spiral for Vodafone Idea,” the report said.
“Considering the fact that Vodafone Idea continues to lose market share, net worth is negative and is also making losses at PAT level, we advise investors to avoid Vodafone Idea,” said Keshav Lahoti, Associate Equity Analyst, Angel Broking. Analysts believe that Vodafone Idea’s survival will be decided by the outcome of the AGR dues matter which is pending before the apex court.