The inventory’s plunge on Friday was prompted by a depressing report by the equities analysis wing of Goldman Sachs’ brokerage arm in India, which predicted an 83% draw back for Vi shares from the day before today’s shut. It maintained a ‘Sell’ ranking on the corporate and raised the goal value marginally to ₹2.5 apiece from ₹2.2 earlier. The report emphasised that Vi’s latest capital elevate, whereas optimistic, was unlikely to arrest its market share erosion.
Vi had raised ₹18,000 crore ($2.16 billion) back in April by a follow-on public provide (FPO). Incidentally, one of many anchor buyers within the FPO was the Singapore arm of Goldman Sachs. In addition, the telecom firm’s promoters have put in ₹2,075 crore in further fairness.
The firm additionally plans to boost extra debt. Vi is in discussions with a clutch of public sector banks, led by State Bank of India (SBI) and Punjab National Bank (PNB), to boost ₹25,000 crore in fund-based or time period loans, and ₹10,000 crore by way of non-fund primarily based amenities or financial institution ensures.
Separately, a few of Vi’s dues to expertise distributors Nokia and Ericsson have been transformed into fairness; previous dues of American Tower Corp have additionally been transformed to fairness, whereas the arrears as a consequence of Indus Towers are being serviced by a fee plan.
Despite all this, nonetheless, the telecom operator continues to bleed and lose market share to its deeper-pocketed rivals, Reliance Jio and Bharti Airtel. While it has reported a income enhance for 3 consecutive quarters, Vi misplaced market share in 16 of its 22 circles throughout the June quarter.
So, what’s going to it take for India’s third greatest telecom operator—a distant third in a really diminished discipline—to show itself round?
No straightforward fixes
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On paper, a number of the solutions to Vi’s issues appear easy sufficient. To start with, the corporate must develop its present 4G community and launch 5G companies shortly to cease clients from leaving its fold. The funds raised within the FPO are supposed to do exactly that.
“They have to act quick and join distributors in the event that they wish to maintain their clients,” stated a worldwide degree govt at one of many Big 4 consultancies, who didn’t wish to be named. The delay in beefing up 4G companies and launching 5G goes to price Vi clients and income market share, he added.
Another game-changer could be changing its roughly 86 million 2G subscribers, who make up 40% of its 210 million base, to 4G companies. Doing so would instantly enhance its common income per person (Arpu).
Together, these two measures would open pathways to a bigger share of the annual income pie of almost ₹2.4 trillion, and take the battle to Airtel and Jio. As of the quarter ended June, Vi’s market share by income stood at 15%, way beneath Jio’s 42.7% and Airtel’s 38.3%.
Ankur Rudra, head of APAC (Asia Pacific) Telecoms and India TMT (expertise, media, and telecommunications) Research at JP Morgan, spelt out his prescription for Vi to remain within the reckoning: “Exits from loss-making circles, better-than-expected conversion of 2G subscribers into 4G, driving Arpu enchancment, decrease community prices and market share restoration in key circles driving better-than-expected profitability.”
Investing in infrastructure
Immediately, Vi is seeking to deploy the funds it has raised to spice up its community infrastructure. Time is of the essence right here as a result of the earlier it finalizes distributors, the faster tools can be deployed to enhance its vary and high quality of service, particularly in under-served areas. This, consultants stated, would handle one of many key causes for its subscriber losses.
The operator is in discussions with distributors resembling South Korea’s Samsung, Finnish telecom gear maker Nokia, Sweden’s Ericsson, and US-based Mavenir to deploy 4G and 5G gear, stated two senior executives conscious of the discussions, who didn’t wish to be named.
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“The tools offers with distributors for the enhancement and rollout of our 4G and 5G community infrastructure have taken barely longer to finalize,” a Vodafone Idea spokesperson said in response to questions from Mint. “However, we are now in the final stages of discussions and expect to close the agreements shortly.”
During the corporate’s earnings name final month, Akshaya Moondra, Vi’s chief govt officer stated, “Our limitation or constraint has been 4G protection, which shall be our precedence and first focus space for increasing.”
The CEO has introduced a ₹55,000 crore capex plan for the subsequent three years, to be spent on beefing up present 4G networks throughout precedence circles and to launch 5G companies. Vi plans to extend the variety of 4G websites from 168,000 to 215,000.
In the primary quarter of this fiscal 12 months, the operator added 6,600 4G towers to its community, at a a lot sooner tempo than the 917 4G websites it added within the earlier quarter. These investments shall be essential to claw back market share from Jio and Airtel. However, it nonetheless faces a problem in reducing community prices, which have risen considerably over the previous few years.
Our limitation or constraint has been 4G protection, which shall be our precedence and first focus space for increasing.
— Akshaya Moondra
“All telcos now get their community tools from European firms as a result of the Chinese (Huawei and ZTE) have been barred from supplying as a consequence of safety issues. This has raised prices for everybody. We might have deployed the identical variety of websites that we do at the moment for a tenth of the fee we pay now,” stated a senior trade govt.
Weaning 2G customers
While murmurs of 6G have already begun to emerge from completely different corners of the world, almost 20%—230 million—of India’s subscribers at the moment are nonetheless 2G customers, with the bulk utilizing function telephones—old school brick telephones with very fundamental options. Of these 230 million, almost 86.3 million are estimated to be in Vi’s fold, representing each a problem and a chance.
Converting these subscribers to 4G is not going to be straightforward, however doing so efficiently has an enormous upside for Vi. In its newest investor presentation, the corporate has outlined its expectations of changing 41% of its 86.3 million 2G subscribers to 4G, which can give it 3 times their Arpu at the moment. Vi’s Arpu stood at ₹146 within the quarter ended June.
To change into 4G customers, these clients might want to hand over their brick telephones and swap to smartphones. But that’s simpler stated than achieved—regardless of India’s tariffs being among the many lowest on the earth, the price of proudly owning a smartphone is simply too excessive for a lot of of those clients. A 2G buyer struggling to pay ₹180-200 a month to maintain his cellphone operating will discover it laborious to shell out ₹8,000-10,000 to purchase an honest 4G cellphone, not to mention an entry-level 5G smartphone.
Vi might initially goal the sub-segment of 4G function telephones, stated Tarun Pathak, analysis director at Counterpoint Research. “Around 40% of the present 2G function cellphone customers have causes aside from affordability to keep away from shifting to smartphones,” he said. “They include the learning curve to upgrade to a smartphone, vernacular challenges, lack of familiarity with the form factor, the need for a dependable device that lasts longer in tough conditions, as well as the need for elderly-specific and cheap, rugged smartphones.” Addressing these challenges can assist the service transition these clients, he added.
A 2G buyer struggling to pay ₹180-200 a month to maintain his cellphone operating will discover it laborious to shell out ₹8,000-10,000 to purchase an honest 4G cellphone, not to mention an entry-level 5G smartphone.
“The trade has witnessed a gradual 10-20% year-on-year migration from 2G to 4G, pushed by the provision of inexpensive smartphones. However, Vi acknowledges the necessity to speed up this transition,” the spokesperson said. He added that the company was offering a voice plan at ₹99, offering a seamless entry level to fundamental knowledge plans for purchasers upgrading to a brand new smartphone.
Debt overhang
While enhancing infrastructure and changing 2G subscribers can arrest subscriber losses and carry Arpu, Vi has a a lot larger problem forward in decreasing its debt burden. Currently, the service owes ₹2.09 trillion to the federal government— ₹1.39 trillion for deferred spectrum and ₹70,300 crore in adjusted gross income (AGR) dues.
The Goldman Sachs report highlighted Vi’s massive AGR or spectrum associated funds, as a consequence of begin in FY26, and famous that the choice of changing some dues into fairness reside solely with the federal government. It additionally identified that Vi’s free money flows could be within the adverse until FY31.
After the moratorium on spectrum funds ends subsequent 12 months, Vi should pay ₹23,400 crore to the federal government for FY26, and ₹45,400 crore every year from FY27 until FY31.
However, if the AGR dues are diminished 65% from the present ₹58,000 crore (consistent with Vi’s self-assessed AGR legal responsibility), if penalties are waived, if tariffs maintain rising, and if the federal government extends the moratorium on reimbursement of the spectrum dues, the worth per share can rise to ₹19, Goldman Sachs stated in its report.
Vi has filed a healing petition within the Supreme Court looking for reduction from the courtroom’s 2019 ruling. The ruling had said that the non-telecom revenues of telcos needed to be included in AGR for calculation of licence charges and spectrum utilization costs payable to the federal government. It has additionally sought a waiver on the penalties for delayed funds.
Circle dilemma
Vi’s investor presentation in June confirmed that it counts 17 of the nation’s 22 circles as precedence circles, accounting for 98% of its income. It has a powerful presence in Kerala, Mumbai, Gujarat, Haryana and Kolkata, that are its prime 5 circles by income market share. JP Morgan’s Rudra believes Vi ought to focus its operations on revenue making circles and exit the loss-making ones.
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But one other senior trade govt stated such a transfer could be suicidal. “It’s a certain shot recipe for failure,” he said, asking for anonymity. The moment Vi decides to move out of any circle, it would trigger a customer exodus because the perception would be that Vi’s services wouldn’t be available everywhere, said the executive. “Even if Vi were to do intra-circle roaming agreements (to use another provider’s network in a circle that it does not operate in), explaining the same to consumers will be a challenge,” he defined.
Vi now has the wherewithal to derive economies of scale from the capex it has invested and can proceed to speculate, so transferring out of any territory shouldn’t be thought-about, the chief insisted.“The concept ought to be to construct it additional, that’s why they’ve raised the funds and are getting extra debt,” he defined.
The excellent news is that Vi’s subscriber erosion appears to have been arrested to an extent. Its buyer base stood at 210.1 million as of June, down from 221.4 million the identical time final 12 months. While that could be a 5% decline, it’s nonetheless an enchancment from the regular decline it suffered in earlier years. In June 2023, it had suffered an 8% decline over the identical quarter of the earlier 12 months and eight% within the June quarter of 2022 from the 12 months earlier than that.
Vi’s 4G clients, who pay extra because of utilizing far more knowledge than 2G customers, elevated to 126.7 million as of June 2024 from 122.9 million the 12 months earlier than and 119 million in June 2022.
Despite the general subscriber contraction, the corporate’s prime line has been rising. In the quarter ended June, it clocked income of ₹10,508 crore, marginally decrease ₹10,606 crore recorded within the quarter ended March. And its financial institution debt has halved to ₹4,600 crore from ₹9,500 crore final monetary 12 months.
“Our postpaid enterprise, a significant lever for Arpu progress, has proven constant month-on-month enlargement for over a 12 months and continues to realize momentum,” stated the Vi spokesperson.
Aside from boosting Arpu, one other upside will come from tariff hikes and the easing of the aggressive depth out there, which has to date stored tariffs low. Jio, Airtel and Vi raised headline tariffs by 10-21% throughout all tariff plans in June.
Our postpaid enterprise, a significant lever for Arpu progress, has proven constant month-on-month enlargement for over a 12 months.
— Vi spokesperson
In addition, Jio and Airtel charging extra for 5G limitless plans will pave the way for Vi to start doing the identical from day one in all its 5G rollout, versus providing them on the similar ranges as 4G plans, as Jio and Airtel did for almost a 12 months, stated analysts. Vi’s 5G companies are anticipated to be launched by the 12 months finish.
“With tariff hikes already taken up, Vi is more likely to proceed witnessing progress, which can arrest the tempo of market share positive factors for Bharti and Jio sooner or later,” brokerage agency Jefferies stated in a 2 September report.
Vodafone Idea is at the moment at a crossroads in its journey. The Aditya Birla Group owned telecom companies supplier has rather a lot going for it and rather a lot going in opposition to it. Much will now rely on how its administration navigates the challenges forward. On how a lot slack the federal government, which owns a 23% stake within the firm, throws it. And on how its rivals, Mukesh Ambani’s Jio and Sunil Bharti Mittal’s Airtel, reply to its efforts to spice up its subscriber base.
