While the troubled Vodafone Idea (VI) is trying to raise funds to cement its position in the Indian market, the latest report by Fitch Ratings suggests it would be in a difficult journey for the third-largest telecom player in the country.
The agency said, “We believe Vodafone Idea will gradually lose market share given its weak balance sheet and limited financial flexibility. We expect industry tariffs to rise as users adopt higher-price 4G plans.”
The Supreme Court of India's decision to allow telcos to pay outstanding adjusted gross revenue (AGR) dues over 10 years from April 2021 is not going to help Vodafone Idea to stabilise its position. Fitch revealed that it expects market leaders Reliance Jio, a subsidiary of Reliance Industries Ltd (BBB-/Stable), and Bharti Airtel Limited (BBB-/Negative) to increase their market shares.
“We expect Jio and Bharti to increase their combined revenue market share to 75-80 per cent from around 70 per cent in the next 12-18 months, at the expense of Vodafone Idea, which will likely lose 50 million-70 million subscribers in the next 12 months; it lost about 155 million subscribers in the last nine quarters.”
The agency believes Jio could acquire more than half of Vodafone Idea's lost subscriber and with rest going to Bharti.
Jio reported EBITDA growth of 55 per cent, while Bharti reported Indian mobile EBITDA growth of 35 per cent in the first quarter of the year ending March 2021 (FY21). In the case of Vodafone-Idea's quarterly EBITDA, it has been stagnant at USD 200 million-230 million, which covers only half of its interest cost.
Vodafone Idea's auditor expressed material uncertainty over the company's ability to continue as a going concern, which, the auditor said, depends on successful negotiations with Vodafone Idea's lenders to waive their rights to repayment after breaches of covenants under its bank loans.
Vodafone Idea's plan to raise about USD 3.4 billion through a mix of equity (not exceeding USD 2 billion) and debt. This is unlikely to restore its competitive position and reverse subscriber losses because the amount would not be sufficient for capex, stated the agency.
At the end of June 2020, it had a cash balance of USD 470 million, which was well short of short-term debt maturities and guarantees of USD 3.6 billion. “It has so far paid about USD 1.1 billion of its total unpaid dues of USD 8.9 billion, and it will need to pay around USD 1-1.2 billion a year during FY 2021-2031.”