Vodafone Idea Sees Dramatic Wealth Erosion In 11 Months

Vodafone Idea Ltd.’s market capitalisation plunged by close to Rs 48,000 crore in the last 11 months as the telecom operator struggles to hold ground amid an unabated tariff war in India’s telecom market.

Shares of the wireless carrier dropped as much as 29 percent on Monday after the operator’s core operating profit turned negative in the quarter ended June as its revenue and subscriber count fell, and costs rose.

Vodafone India and Kumar Mangalam Birla-controlled Idea Cellular had merged amid a telecom sector consolidation driven by Reliance Jio Infocomm Ltd.’s rock-bottom pricing. But the erosion in investor wealth continued in the last 11 months as the company’s financials worsened and debt mounted, increasing the possibility of further fund infusion.

Here’s what’s ailing Vodafone Idea:

No Let-Up In Tariff War

In the last one year, Vodafone Idea lost more than 10 crore subscribers due to the tariff war and its focus on better-paying customers. The drop in user base hurt its revenue growth.

Worsening Financials

Vodafone Idea reported a net loss of Rs 4,900 crore in Q1, after having posted a combined loss of Rs 15,000 crore in the previous three quarters.

According to the consensus estimate of analysts tracked by Bloomberg, the company might continue to report losses not only in 2019-20 but also for the next three financial years. The losses will not only erode Vodafone Idea’s market cap but will also stress its financials.

That, according to Sanjesh Jain, telecom analyst with ICICI Securities, means Vodafone Idea is walking a very tightrope. It requires significant market repair to improve its financial strength, he said in a note.

Cash Burn And High Debt

Vodafone Idea on an average incurred a cash loss of Rs 4,800 crore over the last four quarters because of falling operating profit and higher capital expenditure. That kept its net debt elevated. In the first quarter ended June, net debt reduced by Rs 19,100 crore despite a fund-raise of Rs 25,000 crore.

Further Fund Infusion Needed

Multiple brokerages, including CLSA, JMFinancial, HDFC Securities, Edelweiss and Motilal Oswal, have said the planned fund infusion will support Vodafone Idea’s operations over the next six-eight quarters, and it might need another one after that.

BloombergQuint reported in March that the current infusion will dilute the operator’s equity base by nearly 70 percent. Similar infusions in the future would further dilute equity for minority shareholders.