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Vodafone Idea faces uphill battle in telecom industry

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In Short:

Vodafone Idea struggles in India’s telecom sector due to lack of 4G services, subscriber decline, and high debt levels. The company plans to raise funds through FPO and debt, but investors remain cautious. It faces tough competition from Reliance Jio and Bharti Airtel, with a significant market share loss. Despite fund raise, challenges remain in network coverage, 5G rollout, and debt payments. Vi needs sustained positive performance for long-term viability.

Vodafone Idea Raises Funds Through FPO, Faces Challenges in Telecom Sector

Vodafone Idea recently announced its plans to raise Rs 18,000 crore through a follow-on public offer (FPO) and an additional Rs 25,000 crore through debt to strengthen its position in the telecom industry. The company has also approved raising Rs 2,075 crore from a promoter entity through a preferential share issue.

Challenges Faced by Vodafone Idea

The telecom company has been struggling with a decline in subscriber base due to limited 4G services and network expansion efforts. This has resulted in deteriorating financials and raised doubts about its sustainability in the market, amidst fears of a duopoly in the Indian telecom industry.

Vodafone Idea’s FPO, which opened recently, received a lukewarm response from investors who are concerned about the high debt levels and uncertainty surrounding profitability. However, the company managed to raise over Rs 5,000 crore from nearly 60 anchor investors before the FPO opened.

The company’s net debt stood at Rs 2.14 lakh crore in the fiscal third quarter, with cash and cash equivalents at Rs 318.9 crore. It faces upcoming debt payments of nearly Rs 70,000 crore for adjusted gross revenue (AGR) dues once the moratorium on spectrum payments ends in FY26.

Competitive Landscape and Future Outlook

Vodafone Idea faces tough competition from top telecom players Reliance Jio and Bharti Airtel, who have already launched 5G services in 2022. The company aims to bridge the network coverage gap on 4G and improve market share post the fund raise and investment on capex. However, the gap in 5G coverage is expected to remain significant.

Analysts believe that it will take time for Vodafone Idea to regain its competitive edge in the market. The company’s long-term viability depends on factors such as network expansion, improvement in average revenue per user (ARPU), and tariff revision post elections.

Future Challenges and Government Obligations

Despite the fund raise, Vodafone Idea may face a cash shortfall post the second half of FY26 when the moratorium on AGR dues and spectrum repayments ends. The company has government obligations of around Rs 2.15 lakh crore, with the government’s stake in Vi likely to decrease to 24% post the FPO.

In conclusion, Vodafone Idea’s journey to recovery in the competitive telecom sector will require sustained positive performance and strategic decisions to overcome the existing challenges.

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