Is Vodafone Idea Headed for a Financial Crisis?

Shares of Vodafone Idea (Vi) were down by 10% in early trade today on the BSE after the telecom company posted a loss of Rs 70.2 bn for the March 2021 quarter on the back of an exceptional item.

The company had posted a loss of Rs 116 bn in the same period last year.

Revenues decline on removal of IUC

The company's total revenue fell to Rs 96.1 bn against Rs 117.5 bn in the March 2020 quarter as the absence of interconnection usage charge (IUC) dragged revenue for the mobile phone operator.

The average revenue per user (ARPU) of the company also declined to Rs 107 compared to Rs 121 in the year ago period.

However, on account of cost optimisation measures, the company's earnings before interest, taxes and amortization (EBITDA) came in marginally higher at Rs 44.1 bn. EBITDA margins also increased by 8.6% year on year (YoY) to 45.9%.

The company plans to achieve the target of Rs 40 bn in annualised cost savings by end of the financial year 2022.

It also continues to invest in 4G to increase its coverage and capacity. The company spent Rs 15.4 bn in capex during the quarter and Rs 41.5 bn during the year.

Vodafone Idea Financial Highlights (2021)

Uncertainty on AGR, spectrum payments weigh on the company's future

Commenting on the results, the company in an exchange filing said -

• The company's financial performance has impacted its ability to generate the cash flow that it needs to settle/refinance its liabilities and guarantees as they fall due.
  
  This along with its financial condition is resulting in material uncertainty that casts significant doubt on the company's ability to make the payments mentioned therein and continue as a going concern.

The company added the above assumption is essentially dependent on its ability to raise additional funds as required, successful negotiations with lenders on continued support, refinancing of debts and monetisation of certain assets.

Among other risks flagged by the operator was the fate of its plea filed in the Supreme Court to reduce its adjusted gross revenue (AGR) dues of over Rs 580 bn demanded by the telecom department.

The company further added that as a result of a rating downgrade, certain lenders had asked for an increase in interest rates and additional margin money or security against existing facilities.

The company had earlier announced raising Rs 250 bn in September 2020 via a mix of equity and debt.

However, this hasn't yet been finalised despite holding talks with various potential investors for several months.

How the stock markets reacted to the news

Shares of Vodafone Idea opened at Rs 9, both on the BSE and the NSE today and fell almost 10% after the company announced its March quarter results.

In the past month, the company's shares have gained 7.7%. However, in the last five years, the stock price has fallen 88%.

The scrip touched its 52-week high of Rs 13.8 on 15 January 2021. It had touched its 52-week low of Rs 7.2 on 16 July 2020.

About Vodafone Idea

Vodafone Idea is an Aditya Birla Group and Vodafone group partnership. It's among India's leading telecom service provider.

The company provides pan India voice and data services across 2G, 3G, and 4G platforms.

On 31 August 2018, Vodafone India merged with Idea Cellular, to form a new entity named Vodafone Idea.

Vodafone currently holds a 45.1% stake in the combined entity and Aditya Birla Group holds a 26% stake.

On 7 September 2020, Vodafone Idea unveiled its new brand identity, 'Vi' which involves the integration of the company's erstwhile separate brands 'Vodafone' and 'Idea' into one unified brand.

The company is developing infrastructure to introduce newer and smarter technologies, making both retail and enterprise customers future ready with innovative offerings.

For more details about the company, you can have a look at Vodafone Idea's factsheet and Vodafone Idea's quarterly results on our website.

You can also compare Vodafone Idea with its peers.

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