In Short:
Vodafone Idea’s net loss narrowed to Rs 6,434.4 crore in the first quarter, down from Rs 7,675 crore. Despite lower costs, customer losses and stagnant revenue continue to challenge the company. The average revenue per user stayed flat at Rs 146. Vodafone Idea plans to expand 4G coverage and launch 5G services after raising Rs 24,000 crore. However, it still faces significant debts.
Vodafone Idea Reports Narrowed Losses in Q1 FY25
Vodafone Idea has reported a net loss of Rs 6,434.4 crore for the first fiscal quarter, a reduction from Rs 7,675 crore in the previous quarter. This narrowing loss is attributed to decreased finance as well as lower depreciation and amortization costs. However, the company continues to face significant challenges, including substantial customer losses and stagnant revenue, alongside expected increases in capital expenditures necessary for maintaining commercial viability.
Operational Challenges Persist
The joint venture formed between Vodafone Group of the UK and Aditya Birla Group of India is still struggling with operational hurdles. The telco’s average revenue per user (ARPU), a critical metric for performance evaluation, remained unchanged at Rs 146. The full benefit of recent price increases will be realized only from the second quarter of the fiscal year. Nevertheless, there has been a slight increment in the 4G user base, contributing to a sequential increase in data usage.
“Following the recent equity raise, we are currently focusing on expanding our 4G coverage, enhancing our capacity, and launching 5G services,” stated Akshaya Moondra, CEO of Vi. “We have initiated certain capital expenditures, aiming for a 15% increase in data capacity and an expanded 4G reach of approximately 16 million users by the end of September 2024.”
Revenue Decline
Vi’s quarterly revenue experienced a decline of 0.93% sequentially, falling to Rs 10,508 crore, primarily impacted by ongoing customer attrition. This highlights the company’s challenges in competing with larger rivals, Reliance Jio and Bharti Airtel, both of which have successfully launched national 5G services.
The loss-incurring operator concluded the June quarter with 210.1 million subscribers, a decrease from 212.6 million in the preceding quarter. Nevertheless, the 4G subscriber base saw a marginal growth from 126.3 million to 126.7 million. The rate of subscriber churn increased to 4%, up from 3.9%.
Financial Management Insights
According to Rohan Dhamija, head of India & Middle East at Analysys Mason, “Vi’s revenue drop this quarter can be attributed to continuing subscriber losses; however, it has adeptly managed its financial costs, leading to a significant reduction in interest and net finance expenses as well as lower depreciation and amortization, thus successfully narrowing its net loss.”
The telco noted that its interest and financing costs saw a 15.8% sequential decrease, amounting to Rs 5,262 crore for the June quarter. Additionally, its trade payables declined by 4.9% to Rs 13,060.8 crore, indicative of recent partial payments made towards outstanding dues with Indus Towers.
Market Response and Capex Updates
The company’s shares closed at Rs 16.01 on the BSE, down 0.62%, following the release of the quarterly results after market hours. The increase in 4G users correlated with a rise in average data usage, escalating to 15.96 GB per month from 15.81 GB. However, the average minutes of use per subscriber saw a decline, falling from 627 minutes in the previous quarter to 607 minutes.
Having raised approximately Rs 24,000 crore through equity financing, the financially constrained operator is in talks with a consortium of banks to secure up to Rs 25,000 crore in loans, along with additional non-fund based facilities up to Rs 10,000 crore. This funding is intended to facilitate negotiations with lenders, vendors, and the Department of Telecommunications (DoT) for continued support, along with enhancing operational cash flow to meet liabilities.
As of June 30, 2024, Vi’s cash and bank balance significantly improved to Rs 18,150 crore, buoyed by the recent fundraising efforts.
“Our current capital expenditure is supported by equity funding. We are working with our lenders to establish debt funding necessary for our network expansion, with planned capital expenditure of Rs 500 to 550 billion over the next three years,” Moondra remarked.
Future Financial Strategy
During the quarter ending in June, Vi escalated its capital expenditures to Rs 760 crore, an increase from Rs 550 crore in the previous quarter. However, this is considerably lower compared to Airtel’s capital expenditure of Rs 6,782 crore in Q1 FY25, and Jio, which had operational expenditures estimated at Rs 7,923 crore for the same period.
Vi has previously indicated that the funds raised through debt and equity will mainly go towards a total of Rs 55,000 crore for capital expenditures over the next three years to enhance its 4G operations and facilitate the rollout of greenfield 5G networks.
Debt Situation
As a loss-making entity, Vi’s net debt comprises long-standing deferred spectrum payment obligations totaling Rs 1.39 lakh crore, adjusted gross revenue (AGR) related dues of Rs 70,320 crore, and optionally convertible debentures valued at Rs 1,610 crore. Additionally, the debt from banks and financial institutions rose to Rs 4,650 crore in the first fiscal quarter, compared to Rs 4,040 crore in the previous quarter.
Outstanding debt due by June 2025 amounts to Rs 2,690 crore, not including amounts classified as current due to unmet covenant clauses.
