The recent Vodafone Idea Limited (Vi) Analyst/Investor call, held on September 23, 2024, provided a deep dive into the company’s strategic steps forward, including a significant capex plan and key developments. As the Indian telecom market continues to evolve rapidly, Vi’s position remains precarious, yet cautiously optimistic. Here’s an in-depth look at what the company’s leadership conveyed and the potential challenges they face.
Vi’s leadership announced deals worth INR300 billion with global telecom giants Nokia, Ericsson, and Samsung, as part of their larger three-year capex plan of INR500-550 billion. This investment is aimed at expanding 4G population coverage from 1.03 billion to 1.2 billion, rolling out 5G services, and scaling up capacity to meet growing data demands.
While the announcement sounds promising, the real question is whether this capex plan will be enough to turn the tide for a company that has struggled for years under financial burdens, intense competition, and subscriber churn.
Vi’s debt continues to loom large over its operations. With INR48 billion in bank debt as of the last quarter and ongoing efforts to raise INR250 billion in funded and INR100 billion in non-fund-based facilities, the company's financial health remains a pressing concern. The recent techno-economic evaluation conducted by an independent third party engaged by SBI, Vi’s lead banker, has set the stage for further bank evaluations.
However, the clock is ticking, with 7-8 weeks expected for the finalization of bank funding. The management has repeatedly assured that the company’s cash flow from operations will sufficiently cover their government obligations in the short term, yet long-term sustainability remains in question.
The AGR (Adjusted Gross Revenue) issue has been a major point of contention for Vi, with the Supreme Court recently dismissing a curative petition that sought to address calculation errors in the AGR demands. Vi’s leaders were candid in expressing their disappointment, yet they emphasized that their long-term business plan has been crafted without relying on a positive outcome in the AGR matter.
While the rejection is undoubtedly a setback, Ravinder Takkar, Non-Executive Chairman, remains optimistic about seeking further remedies from the government. The real question is whether the government, with 23% shareholding in the company, will step up with meaningful relief.
In a highly competitive telecom market, tariff hikes have become a vital tool for companies like Vi to generate more revenue. The company saw its new tariff plans come into effect in July 2024, with a similar price hike expected within the next 15 months. This move, though necessary, brings the risk of customer pushback, particularly when subscriber churn continues to be a challenge.
Vi’s future also hinges on the successful deployment of 5G services. However, as the company itself has admitted, 5G monetization in India remains uncertain, with limited consumer use cases and slow device penetration. Vi’s plan to cover 17 circles with 5G spectrum may be a step in the right direction, but the telecom giant faces the mammoth task of convincing both consumers and investors of 5G's profitability.
Perhaps the most glaring issue for Vi is its elevated subscriber churn. Despite ambitious plans, Vi continues to lose subscribers at a worrying pace. Akshaya Moondra, CEO of Vi, acknowledged that subscriber metrics may start to improve only toward the end of the current financial year, as the company rolls out its network upgrades. But the challenge remains: Can Vi regain market share in a space where Jio and Airtel have firmly established dominance?
The management’s confidence in turning around subscriber churn is tied to their 4G and 5G network enhancements, but whether this will be enough to stem the tide of losses remains to be seen.
Vi’s leadership has consistently expressed their belief in the government's support for a three-private player market. Given the government’s significant financial stake in the company, this belief is not unfounded. However, the extent and timing of any government relief remain unclear. Vi is banking on the government’s intervention in several key areas, including AGR dues, bank guarantees, and policy support, to help ease its financial burden.
But is this reliance on government support slowing down Vi’s progress? Critics argue that Vi's leadership may be moving cautiously, hoping for external relief rather than aggressively tackling the company's internal challenges. While the company waits for government actions, the competition is not standing still, and time may be running out for Vi to make significant strides.
Vodafone Idea’s roadmap for the next three years reflects cautious optimism, underscored by heavy investments and a belief in government support. The INR500-550 billion capex plan may lay the foundation for a revival, but the challenges of debt, AGR liabilities, subscriber churn, and slow 5G monetization present significant roadblocks.
For investors, the key question remains: Is Vodafone Idea on the verge of a smart turnaround, or is the company merely buying time? The next few months will be critical in determining whether Vi’s ambitious plans translate into sustainable growth—or if the telecom giant continues to struggle in the shadows of its stronger competitors.
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