The company says that last week’s decision by the Indian Supreme Court to allow telcos to pay outstanding adjusted gross revenue (AGR) dues over 10 years from April 2021 “will not be enough” for Vi to stabilise its position.
“We believe Vodafone Idea will gradually lose market share given its weak balance sheet and limited financial flexibility,” says the report from Fitch. “We expect industry tariffs to rise as users adopt higher-price 4G plans. Jio, which was unaffected by the court’s ruling, is likely to strengthen its market leadership with further subscriber gains.”
Fitch says it expects Jio and Airtel “to increase their combined revenue market share to 75%-80% from around 70% in the next 12-18 months”, while Vi “will likely lose 50 million-70 million subscribers in the next 12 months”.
More than half of the lost subscribers will go to Jio, the agency says, with the rest going to Airtel.
The regulator, the Telecoms Regulatory Authority of India (Trai), noted in July that Jio is adding customers in India at the rate of 4.6 million a month, while both of the other major operators are losing 7.5 million a month between them.
Fitch elaborates: Vi “lost about 155 million subscribers in the last nine quarters”, it says.
The ratings agency notes that Vi’s quarterly EBITDA “has been stagnant at US$200 million-230 million, which covers only half of its interest cost”.
It warms: “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.”
Vi plans to raise up to $2 billion in equity and more – up to a total of $3.4 billion – in debt, but Fitch says this “is unlikely to restore its competitive position and reverse subscriber losses, because the amount would not be sufficient for capex”.
At the end of June 2020, Vi had a cash balance of $470 million, “which was well short of short-term debt maturities and guarantees of $3.6 billion”, says Fitch. “It has so far paid about $1.1 billion of its total unpaid dues of $8.9 billion, and it will need to pay around $1-1.2 billion a year during FY2021-2031.”
Fitch expects Airtel to increase its Indian mobile EBITDA by 30%-40%, Jio’s mobile revenue going up even more, by 45%-50%.
