Vodafone and Idea merged as a hedge against the entry of Reliance Jio in 2016. Instead, it ended up being a sad story of lost opportunities and mounting debt. Where does the business go from here?
Almost a government company
With the latest conversion of its AGR dues into equity, Indian government is a 49% shareholder in Vodafone Idea. The first tranche of 33% stake came in 2023 and with Vodafone still unable to pay the AGR dues to the government, the stake of the Indian government has gone up to 49%. This is in lieu of AGR dues of about ₹40,000 crore. Vodafone Idea Shareholding Pattern That is the amount of debt that has reduced from the books of Vodafone India and has also reduced the interest burden of the company. But, is the company really better off today? It has been a long tale of debt and losses.
Some relief, but not much!
With the government intervening to equitize AGR dues, VI has got some breathing room .However, scratch the surface, and the problems are still huge. Its debt is down from ₹2.20 trillion to ₹1.80 trillion and the annual interest cost is down from ₹40,000 crore to a more subdued ₹23,000 crore. Vodafone Idea share price rises The big problem is that promoters and the other investors have infused ₹20,000 crore into Vodafone Idea. With a high default risk debt rating, raising debt funds is almost next to impossible. Why is the centre still going on saving Vodafone Idea.
Government keen to save VI
The big question is; why is the centre so hell bent on saving Vodafone Idea. BSE The answer is partially business and some amount of commercial logic too. Clearly, the government always wanted to avoid a duopoly in a critical sector like telecom. Today, BSNL is too small a player to make any meaningful difference to the telecom sector. Vodafone Idea is the best bet to avoid a duopoly, since that has much bigger pricing implications too. But, the more commercial logic is that the government just cannot afford to let VI go under. It not only loses out on the AGR dues, but also loses any value it can derive from its 49% equity stake in the company. For the Indian government, saving Vodafone Idea is the best course of action. For the Indian government, saving Vodafone Idea is the best course of action.
Economics of Vodafone Idea
The big question is whether it is really possibly to vodafone idea’s stock price work out a rescue act and make the company profitable. Some of the numbers are quite intimidating. VI lost over 17 lakh subscribers in 2024 and its debt/EBITDA ratio stands at 14.8X. Its competitors have debt/EBITDA of less than 2.5X. Vodafone Idea needs capex of ₹55,000 crore in the next 3 years and it needs ARPU to double from the current level of ₹175 to over ₹360 to be able to make profits. That is the big question; as getting such sharply higher ARPU and arranging funds for capex is going to be a really tall ask. Centre will have to take a call on VI at some point!
