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Vodafone Idea aims for 2.2x ARPU increase to meet payout commitments

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In Short:

Analysts said Vodafone Idea needs to increase its average revenue per user (ARPU) 2.2 times to around Rs 320 by FY27 to meet its stiff annual regulatory payouts. Even with a 50% cut in its adjusted gross revenue (AGR) liability, Vi still needs to generate higher ARPU to bridge the cash shortfall. The telco plans to upgrade subscribers to 4G and increase tariff hikes to improve ARPU.

Vodafone Idea Needs to Double ARPU to Meet Regulatory Payouts: Analysts

Vodafone Idea’s average revenue per user (ARPU) needs to more than double in the next two years for meeting its stiff annual regulatory payouts from FY27, analysts said.

Current Situation

Vi’s ARPU needs to jump 2.2x to around Rs 320 by FY27—from Rs 146 now—even if the cash-strapped telco sees a 50% cut in its adjusted gross revenue (AGR) liability to Rs 35,000 crore via a favourable Supreme Court verdict on its curative plea. As per company data, Vi’s total AGR dues were pegged at Rs 70,320 crore in the quarter to March 2024.

Analysts Estimates

Analysts estimate Vi’s annual payout obligations towards spectrum and AGR will be a hefty Rs 35,000 crore from FY27 onwards even if its AGR dues are halved. The sharp jump in the telco’s regulatory payouts is envisaged after the moratorium on these payments ends in September 2025.

“Assuming an AGR relief from the SC of Rs 35,000 crore, Vi’s annual payment to the government could reduce by Rs 8,000 crore to around Rs 35,000 crore. But our calculation suggests Vi still needs ARPU to jump sharply to Rs 320 in FY27 to meet its upcoming annual payment obligation,” JM Financial said in a note seen by ET.

The higher ARPU is needed to bridge Vi’s estimated Rs 31,000 crore cash shortfall from FY27 onwards towards payment of government dues, it added.

Future Scenario

As per Vi’s self-assessment, corrections are needed in the principal component of the AGR demand. The telco has also sought a waiver of the penalty component in the total AGR demand. Legal circles expect the matter to come up for hearing in early July.

Analysts, though, said the situation could worsen in absence of any apex court relief on the AGR front. This, since Vi’s annual cash shortfall would then jump to almost Rs 39,000 crore, requiring Vi to generate an even higher ARPU of Rs 360 by FY27 to bridge the gap. Vi’s annual payment obligations to the government are estimated to increase to Rs 43,000 crore from FY27 in absence of any AGR relief.

Vi’s Strategy

Vi, on its part, plans to continuously upgrade subscribers from 2G to 4G along with multiple tariff hikes to improve its ARPU and double annual operating income, which it feels will help it address its upcoming debt obligations. Its targeted Rs 50,000-55,000 crore funding will go towards capex to boost 4G coverage and launch 5G in key markets.

Sanford C. Bernstein, though, feels Vi’s targeted fundraise is not large enough to have a significant impact on the industry dynamics and the telco’s debt position.

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