In Short:
Vodafone Idea (Vi) plans to reduce its monthly subscriber loss, currently at 4%, by enhancing 4G coverage and capacity. After raising Rs 24,000 crore, Vi aims to boost data capacity by 15% and expand 4G service to 16 million more people. Although they’ve lost 2.5 million users recently, improvements could attract new subscribers and increase stock value. Vi also raised tariffs to improve revenue.
Vodafone Idea (Vi) anticipates a reduction in its monthly subscriber churn rate, currently at 4%, beginning in the upcoming fiscal fourth quarter. This downward trend is expected to occur as the company addresses 4G coverage gaps through the execution of its capital expenditure (capex) program, as indicated by the company’s leadership during a recent analyst call.
Capital Raise and Expansion Plans
Following its successful capital raise of Rs 24,000 crore, Vi plans to enhance its data capacity by 15% and expand its 4G population coverage by 16 million by the end of September, according to senior management. The telecom joint venture between the UK’s Vodafone and India’s Aditya Birla Group is also strategizing to leverage its recent sub-GHz spectrum acquisitions in the June 2024 auction to enhance its 900MHz band presence in 16 of its 17 priority circles, which is intended to improve customer experience on the 4G front.
Analysts’ Predictions and Subscriber Growth
Analysts participating in the call predict that Vi will begin to experience subscriber growth again as it resolves 4G coverage gaps and increases data capacity. According to a research note from Motilal Oswal, “Vi expects its monthly churn rate to come down after the next quarter as the capex deployment will commence. The capital raise has led to some respite, as the long-pending capex and continuous subscriber churn were undermining its operating performance.”
Despite this optimism, Vi’s management cautioned that a shift in the company’s subscriber net additions trajectory would require time. The company lost approximately 2.5 million customers in the June quarter, reducing its user base to 210.1 million.
Challenges and Improvement Strategies
The primary factor contributing to Vi’s elevated churn rate has been its relatively poor 4G coverage and capacity when compared to competitors. According to ICICI Securities, the company has committed to addressing its 4G coverage requirements swiftly. Over the past year, Vi’s churn rate has ranged between 3.9% and 4.3%, while major competitors Jio and Airtel recorded considerably lower churn rates of 1.7% and 2.8%, respectively, in Q1 FY25.
To tackle these challenges, Vi plans to front-load its capex program over the next 18 months, prioritizing the enhancement of 4G coverage and alleviating capacity congestion, as stated by senior company executives. According to a note from Nomura Research, if Vi can significantly halt its subscriber decline and return to growth, it could positively impact the stock’s outlook and drive earnings upgrades.
Market Performance and Future Initiatives
In early Friday trading on the BSE, Vi shares increased by 0.19% to reach Rs 15.82. The company is currently engaged in discussions with lenders to secure an additional Rs 25,000 crore through loans and another Rs 10,000 crore in non-fund-based facilities. These measures aim to support its ambitious Rs 55,000 crore network capex plans over the next three years.
Furthermore, Vi’s management anticipates that the recent hike in headline rates may lead to low SIM consolidation, as the price increases for entry-level recharges are marginal compared to other offerings. Last month, Vi raised mobile tariffs by 10-23% to bolster average revenue per user (ARPU), while ensuring continued support for entry-level users, for whom the price adjustments have been minimal.
