The Economic Times
English EditionEnglish Editionहिन्दीગુજરાતી
| E-Paper
Search
+

    Vodafone Idea now a negative Rs 19,500 crore networth firm

    Synopsis

    “Our key concern is undercutting capex to conserve cash. While qoq capex decline is understandable given the Covid impact, the extent is surprising and we see structural risks,” Bank of America Merrill Lynch said in a note.

    UBS said Vodafone Idea posted a weak set of results with ARPU (average revenue per user) decline and further market share losses while the AGR issue remains an overhang on the stock.

    Related Companies

    NSE
    BSE

    PEER COMPANIES

    New Delhi: Provision for statutory dues and mounting losses have driven Vodafone Idea’s net worth to negative Rs 19,500 crore at June end, pushing the telco's stocks to open over 7% lower. Shares though had recovered to be trading higher in afternoon trade.

    “The company made additional AGR (adjusted gross revenue) provisions amounting to Rs 199 billion, and posted a net loss of Rs 255 billion, as a result of which the net worth turned negative and stands at (-) Rs 195 billion,” brokerage firm UBS said in a report on Friday, meaning the company’s liabilities exceed its assets.

    The house added that exceptional costs in Q1 included Rs 19,440 crore relating to total estimated AGR dues, Rs 123 crore as one time spectrum charge and Rs 3.70 crore as merger related costs.

    CLSA, in a report said, Vodafone Idea’s AGR burden is ‘enormous’. Even if 20 years tenure is granted, on the telecom department’s estimates Voda Idea’s EMI will be 30% of cash Ebitda when debt burden is also rising at Rs1.15 lakh crore. Some 80% of this amount is for spectrum liabilities which have two-year moratorium, CLSA said.

    The company’s stock plunged 7.3% in the opening trade on Friday but has recovered since. It was trading 1.09% higher at Rs 8.34 per share during afternoon trade on Friday.

    The telco needs to pay around Rs 50,400 crore more to the telecom department in license fee, spectrum usage charges (SUC), interest and penalties. The top court has reserved its order on whether telcos will be allowed to stagger their payment over a timeframe. The case is scheduled to be heard on August 10.

    ICICI Securities’ base case is 15 years payment period with 8% interest rate, which will need “significant rise in tariffs to meet rising liability, and tariff hike asking rates are increasing with every passing quarter.”

    During the bygone quarter, Vodafone Idea cut capital expenditure by almost 67% to Rs 600 crore compared to Rs 1,820 crore for the preceding quarter. According to Credit Suisse capex for the quarter is at historically low levels—less than one-fourth of its trailing 12 months average quarterly capex of Rs 2500 crore.

    “Our key concern is undercutting capex to conserve cash. While qoq capex decline is understandable given the Covid impact, the extent is surprising and we see structural risks,” Bank of America (BofA) Securities said in a note.

    Brokerage ICICI Securities said lower capex is unsustainable otherwise it will hurt subscribers.

    Thursday, Vodafone Idea posted a net loss of Rs 25,460 crore for the fiscal first quarter, its eighth successive three-month period in the red. Consolidated revenue fell 9% to Rs 10,659 crore while earnings before interest, tax, depreciation and amortization rose 14% due to one-off benefit of Rs.300 crore related to network costs, license Fees and SUC charges.

    UBS said Vodafone Idea posted a weak set of results with ARPU (average revenue per user) decline and further market share losses while the AGR issue remains an overhang on the stock.

    BofA said Vodafone Idea once again underperformed peers in revenue as well as key performance indicators.

    During the April-June period, the telco lost 11.3 million subscribers including 1 million 4G subscribers. ARPU was down 5.8% on-quarter to Rs 114 from Rs 121 against corresponding ARPU gain by rivals Bharti Airtel (Rs 157) and Reliance Jio (Rs 140).
    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

    42 Comments on this Story

    Pooja Suvarna48 days ago
    Jagdeep you are right. Root cause analysis is required. Country need to know where the money the money has gone. Country need to know if the money is lying in Rajas, chidus or sonias account and if the same can be recovered.
    Jagdeep Sharma48 days ago
    Vodaphone is too big to fail. It is very important to find out why is Vodaphone in this situation. Was it because of Indian system or because of company management? We have seen a string of high profile failures in India. Ultimately , it is the precious resources of country which are being squandered away.
    Courts will only give a decision , but we need to get to root cause of this issue. Why is it that one by one all the big names are tumbling ? Who is responsible and how can it be set right?
    Hemant Pisat48 days ago
    Already UBS has downgraded Jio's ARPU earnings, a warning through ratings agencies to Indian customers to allow the ONLY telecom behemoth to increase the price of their plans to earn better for shareholders and enhance market capitalisation to become the world's richest person before March 2021.
    The Economic Times