Vodafone Idea net loss widens to Rs 5\,005 cr in Q3

Vodafone Idea’s net loss widened to Rs 5,005.7 crore in the fiscal third quarter despite a tax write back as intense competition and high debt continued to bleed India’s top mobile phone company that lost 35 million subscribers in the period. Net loss for the company, created following a merger of Vodafone India and Idea Cellular as a consequence of the brutal competition in the market, widened from Rs 4,950.5 crore in the December quarter, despite a tax write back of about Rs 2,000 crore. In a statement, the company said it has already started seeing the benefits of synergies after the merger in August end, with operating expenses of Rs 8,150 crore, excluding licence fees & spectrum usage charges and roaming & access charges, lower by around Rs 750 crore — annualised at around Rs 3,000 crore — compared with the fiscal first quarter. “As a result, despite the reduction in revenue, EBITDA (earnings before interest, tax, depreciation & amortisation) increased to Rs 11.4 billion, a 16.3% improvement on quarter,” the company said. Ebitda margins for the quarter expanded to 9.7% from 8.1% in the previous quarter. “We are moving faster than expected on integration, specifically on the network front, and we are well on track to deliver our synergy targets,” CEO Balesh Sharma said in the statement.

The carrier’s quarterly revenue of Rs 11,764.8 crore was 2.2% lower sequentially, but the decline was limited compared with the 7.1% sequential fall in the fiscal second quarter, mainly due to the initial effects of the minimum recharge plans which forced some dormant users to become paying ones, analysts said. “Ourheadline tariffs remained stable during the quarter. However, customers continue to migrate to lower ARPU plans,” the company said, adding “we experienced growth in daily revenue on a month-on-month basis during December 2018, which continued into January 2019”, reflecting the initial effects of the minimum recharge plan.

But the plan also led to many subscribers leaving the network, reducing its user base to 387.2 million from 422.3 million at the end of September, a trend likely to continue, a person familiar with the matter said. Quarterly churn — or percentage of users leaving the network – rose to 5.1% from 4.3% in the second quarter that led to a 2.6% fall in the total minutes on the network during the quarter. However, increase in proportion of paying users and a lower user base helped turn around the trend of falling average revenue per user (ARPU) with the key performance parameter rising a tad to Rs 89 from Rs 88 in the previous quarter, offsetting the impact of some users choosing lower-valued plans. “The initiatives taken during the quarter started showing encouraging trends by the end of the quarter,” Sharma said. He added that the .`25,000 crore infusion through a rights issue, of which over Rs 18,000 crore will be from the two promoters, “will put us in a strong position to achieve our strategic goals.” A person familiar with the matter said that the infusion is imminent and will happen “in weeks.”

Vodafone owns a 45.2% in the combined entity and the Aditya Birla Group, the promoter of Idea Cellular, has 26%. The company’s net debt stood at Rs 114,760 crore compared with Rs 112,510 crore at September end. At a time of weakening cash flow, the fund infusion is critical.

The telco’s cash & cash equivalents were Rs 8,904.4 crore. It has to meet Rs 9,500 crore of spectrum liabilities in 2019, besides its debt financing obligations, and invest to grow its 4G network to compete with Reliance Jio and Bharti Airtel. Interest & finance charges for the three month period were Rs 2,610 crore. The company has been seeking to defer payments, but the telecom department has rejected the request so far.

Shares of Vodafone Idea closed at Rs 29.80, down by 1.65%, on the BSE on Wednesday. The results were announced after market hours. Vodafone Idea’s results mirror the pressures on profitability and the arrest of the revenue and ARPU declines seen by the country’s second largest telco Bharti Airtel, which eked out a consolidated net profit — of Rs 86 crore — helped by one-time gains, though the bottom line was 72% lower on year. Incomparison, new entrant Jio, whose entry in September 2016 triggered the price war, reported its fifth straight profitable quarter with a 65% on-year jump in the bottom line to Rs 831 crore. “The 16.3% sequential growth in Ebitda suggests Vodafone Idea’s operating performance is showing signs of a revival, primarily as cost synergies are starting to kick in, coupled with increasing month-on-month revenue growth trends," said Naveen Kulkarni, telecom analyst and head of research at Reliance Securities.“One can expect VIL's Ebitda and revenue to improve further in the fiscal fourth quarter with the strong momentum of healthy 4G subscriber adds likely to continue,” he added. The company added 9.3 million 4G subscribers, bumping up that base up to 75.3 million at the end of December. Capex for the quarter was Rs 1,170 crore, but “the level of capital expenditure is expected to be higher in Q4 as contracts with suppliers were finalised during Q3,” the company said. Quarterly total expenses were at Rs 18,226.1crore and depreciation & amortisation charges were Rs 4,770 crore. The company didn’t give the previous quarter’s figures.