ICRA: "Material Government Support" Needed for Vodafone Idea's Survival

On Monday, ICRA said that Vodafone Idea's financial stress can impact financial and other stakeholders alike, altering the industry structure.

Vodafone Idea's Woes Resonate Throughout the Industry

ICRA said that since Reliance Jio arrived at the telecom scene, the sector has seen a decline in revenue and profit generation. It added that the AGR dues has compounded the issues and raised debt levels. Owing to the aforementioned reasons, the financial position of Vodafone Idea Limited (VIL) has been deteriorating due to mounting losses and increasing debt levels.

Sabyasachi Majumdar, Group Head & Senior VP, ICRA, said, "this, along with consistent churn in the subscriber base, largely stagnant 4G user base, and pressure on ARPU levels have kept the revenue and profit generation muted". He added that VIL's capex has remained low as compared to its competitors. Majumdar said that this has resulted in limited network upgradation and expansion. Further, he said, "this coupled with sizeable repayment obligations in the coming quarters is likely to keep its financial position stressed".

Vodafone Idea's situation can only be described as dire. Over the last 12 quarters, stretching as far back as 2019, the telco has failed to report profits. What's more, the telco's liabilities stand at over Rs 2 trillion. Further, the telco owes about Rs. 23,400 crores to lenders and Rs. 168,190 crores to the center towards spectrum and AGR deferred dues.

In addition, it will also have a bearing on VIL’s 255 million subscribers, large employee base and vendors, especially tower companies.

Towers Companies Facing the Most Fallout

If the telco does shut down, ICRA estimated that tower companies can only regain 40-50% of the 180,000 tenancies that Vi has. Even so, the shockwave will lead to widespread disruptions, leading to redundancies and network misalignments. Tower companies will also have to go through a loss of revenue and EBITDA.

ICRA said that on the flipside, other active telcos will take up the existing 255 million subscribers of VIL. These telcos will have to expand their network presence to cater to a large additional subscriber base. However, the tenancies will still remain at 2021 levels by 2024, said ICRA.

Even though the demand for loadings and high-power small cells will remain high, the tenancy loss will still take place. Apart from that, tower companies will also bear the brunt of write-offs for VIL’s receivables. ICRA also said that debt metrics will witness moderation, low debts and strong liquidity of the tower companies will alleviate these concerns to some extent.

Ankit Jain, Sector Head & Assistant VP, ICRA, said, "given the current situation and sizeable obligations in the near term for VIL, material external support (primarily from Government) can act as a relief measure".

Jain said that the telco needs moratoriums on spectrum dues, which can result in a deferment of Rs. 32,000 crore for the industry; Vi accounts for half of that. Furthermore, he said that reducing levies for telcos can also work wonders for EBITDA. For instance, he said that reducing EBITDA by 1% can save Rs. 1,600 crore annually.

ICRA also advocated for introducing floor pricing for the telcos. Jain said that a Re. 1 increase in ARPU will translate to Rs. 400-500 crore in EBITDA for the industry.

"A combination of these relief measures could aid the financial profile and the structure of the industry", he concluded.