Telecom competition takes a breather, may recharge Vodafone Idea

Vodafone Idea's financial health is set to get a much-needed boost from latest tariff increases and easing competitive intensity with analysts predicting the debt-laden telecom operator's average revenue per user (ARPU) to rise to ₹171-180 by this fiscal-end, from ₹143 in April.

Brokerage Citi Research projected rising revenues, operating income, capex, and narrowing losses for the telecom joint venture between India's Aditya Birla Group and UK's Vodafone Plc. "The peak of competitive intensity is now likely behind us, evidenced not just by the latest tariff action but also the recent spectrum auction," Citi said in a report.

"With Jio taking the lead in initiating the latest round of tariff hikes, a shift in stance of the market leader towards monetisation is now clearly evident, which also improves visibility of future hikes," it said, adding that last week's price increase were slightly ahead of market expectation in terms of both magnitude and timing.

Consequently, Citi expects Vi's ARPU to reach ₹171 in FY25, also factoring in a decline in subscriber loss from 213 million currently to 210 million in FY25.


Motilal Oswal Financial Services Ltd (MOFSL) forecast Vi's earnings before interest, tax, depreciation and amortisation (Ebitda) to grow at 17% compounded annually between FY24 and FY26, up from 4% during FY20-24. Revenue would grow at 11.5% in the same period.

Centrum Broking expects Vi's ARPU to touch ₹180 by March quarter.

Every ₹1 increase in ARPU is expected to add about ₹1,000 crore to the telecom industry's PBILDT (profit before interest lease depreciation and tax), ratings firm CareEdge Ratings had said.

However, Vi's weaker position in terms of network infra compared to its bigger rivals will continue to weigh on India's third-largest telecom operator, experts said.

HSBC Global Research expects Vi's recent capital raise to help the company improve its network coverage and capacity, and "we expect the pace of its market share loss to be slower than before".

Vi recently concluded a ₹24,000 crore fundraise through promoters' equity infusion, follow-on public offer as well as equity issuance to vendors. It is also in talks with lenders for external debt funding of ₹25,000 crore. Most of the funding will be deployed towards capex for 4G network expansion and rolling out 5G.

"We believe the next catalysts for the telecom stocks would be subscriber gains, a reduction in churn, and an increase in data customers. VIL has laid out a capex plan of ₹500-550 billion in the next three years, which could support the network and restrict churn," MOFSL said in a report.

However, currently, it appears to be a far-fetched scenario as "the company is unlikely to create a self-sustainable cash flow position due to its large debt and its EBITDA being unable to meet the annual AGR and spectrum obligations," it added.