Vodafone Idea expected to lose 50-70 million subscribers in next 12 months, says Fitch Ratings

According to a recent report by Fitch Ratings, Vodafone Idea (Vi) is expected to lose 50-70 million subscribers in the next 12 months, after losing about 155 million subscribers in the last nine quarters already.

Fitch expects Reliance Jio to gain more than half of Vodafone Idea’s subscriber losses, with the balance going to Bharti Airtel. As per the agency, Airtel and Jio could increase their combined revenue market share to 80 per cent in the next 12-18 months.

However, Fitch Ratings stays unsure about Vodafone Idea’s plan to raise about $3.4 billion through a mix of equity and debt. According to the agency, it is unlikely to restore its competitive position and reverse subscriber losses, as the amount would be insufficient for capex.

It also affirmed Airtel’s Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at ‘BBB-‘. Besides, it has also affirmed Airtel International (Netherlands) B.V.’s senior unsecured guaranteed bonds at ‘BBB-‘ and Network i2i Limited’s subordinated perpetual bond at ‘BB’. However, Fitch added that the Negative Outlook does not reflect its view of Airtel’s underlying credit profile but rather the heightened probability that India’s Country Ceiling (BBB-) could be lowered to ‘BB+’. According to it, such an action would constrain Bharti’s IDR andsenior issue ratings to ‘BB+’.

According to the agency, Airtel’s FY21 funds from operations (FFO) net leverage to be 2.2-2.4 times, below the threshold of 2.5times above which we will take negative rating action. It expect Airtel’s FY21 revenue and earnings before interest, taxes, depreciation, and amortisation (EBITDA) to rise by around 17-25 per cent, on improvement in the Indian wireless market and continued strong growth in African markets, despite the economic slowdown caused by the coronavirus pandemic. Consolidated revenue and EBITDA in 1HFY21 rose by 19 per cent and 37 per cent YoY, respectively, defying the pandemic-led slowdown. Airtel’s Indian wireless EBITDA is expected to rise by around 40-50 percent in FY21, led by 15 million subscriber additions and monthly average revenue per user (ARPU) improvement of 10-12 per cent.

Fitch expect Airtel to generate small positive free cash flow in FY21 on flat core capex, lower interest costs and the government’s two-year moratorium on the payment of existing spectrum dues.