According to Fitch Ratings, the Supreme Court’s (SC) verdict on telecom sector dues will not be able to stabilise Vodafone Idea Limited’s (VIL) position as the telco is expected to continue losing subscriber market share.
The credit analysis firm believes that VIL will gradually lose market share given its weak balance sheet and limited financial flexibility.
Further, it added that Reliance Jio, which was unaffected by the court’s ruling, is likely to strengthen its market leadership with further subscriber gains.
On VIL’s recent fund raising plans, Fitch Ratings said that VIL’s $3.6 billion fund raise plan is unlikely to restore its competitive position and reverse subscriber losses, as the amount is insufficient for capital expenditure. Substantiating the statement, it added that at quarter ended (QE) June 2020, VIL had a cash balance of $470 million, which was well short of short-term debt maturities and guarantees of $3.6 billion. Besides, Fitch Ratings added that VIL whose average revenue per user (ARPU) is about 30 per cent lower than Airtel’s, may increase tariffs to improve cash flows and it estimate industry ARPU to grow by around 10 per cent in financial year (FY) 2021, as users upgrade gradually to higher-tariff 4G price plans.
Fitch Ratings expects Jio and Bharti Airtel to increase their combined revenue market share to 75 per cent – 80 per cent from around 70 per cent in the next 12-18 months, at the expense of VIL, which will likely lose 50 million-70 million subscribers. It has already lost about 155 million subscribers in the last nine quarters. The firm expects Airtel’s mobile segment earnings to improve by 30 per cent -40 per cent this fiscal, supported by likely tariff hikes and 5 per cent-6 per cent subscriber growth. It also expects Jio’s mobile segment earnings to increase by 45 per cent-50 per cent, led by higher monthly ARPU and subscriber additions of about 40 million.