Vodafone Idea posts quarterly loss of Rs 49 bn, says to raise $3.5 billion

Vodafone says the integration of both firms will deliver synergy targets of Rs 140 bn annually

In its maiden financial results after the merger, Vodafone Idea on Wednesday reported a net loss of Rs 49.7 billion on a revenue of Rs 120.2 billion.

For the July-September quarter, earnings before interest, tax, depreciation and amortisation (Ebitda) declined 28.7 per cent to Rs 9.8 billion.

The biggest disappointment, however, was the 4.7 per cent sequential decline in average revenue per user (ARPU) to Rs 88, that missed all analyst estimates (predicted at Rs 95-98).

Meanwhile, the company has indicated that its board is evaluating a fund raising of up to Rs 250 billion (or $3.5 billion) to ensure that the company has sufficient balance sheet flexibility to successfully go on with its strategy.

The merger of Vodafone with Idea Cellular was completed on August 31. The numbers for the reported quarter include results for Idea Cellular up to August 30 and Vodafone Idea from August 31 to September 30.

Hence, these are not comparable to the earlier period. The figures for revenue, Ebitda and key performance indicators for Q1FY19 and Q2FY19 are pro-forma figures and presented as if Vodafone Idea was a merged entity from April 1, 2018, the company said.

Commenting on the results, which have been impacted by increased competition and pricing pressure, Balesh Sharma, CEO of Vodafone, said, “In just 75 days of operations, several milestones have been achieved ahead of the expected timeline. We are thus well on track to deliver the synergies envisaged at the time of merger.” Vodafone further indicated that integration of both firms (Idea and Vodafone) is progressing well to deliver synergy targets of Rs 140 billion annually, including opex synergies of Rs 84 billion.

During the quarter, the company witnessed customer migration to lower ARPU offerings. This led to a 4.7 per cent decline in ARPU on a sequential basis. It also lost 13 million customers during the period, and together these resulted in a 7.1 per cent decline in total revenue compared to the previous quarter. Continued revenue pressure dragged Ebitda, which declined by 28.7 per cent. Ebitda is an indicator of a company’s operating profitability.

The Ebitda margin came in at 8.1 per cent, which was lower than 10.6 per cent in the previous quarter.

In the quarter before this, Idea Cellular had posted a surprise profit, riding on a one-time gain from the sale of telecom towers of Rs 2.57 billion and a revenue of Rs 58 billion. Idea had reported an ARPU of Rs 100 in the previous quarter.

Vodafone’s peers have also seen ARPU declining during the quarter under review — Bharti Airtel’s ARPU was down 4.5 per cent to Rs 101, while Reliance Jio registered a 2 per cent decline in ARPU to Rs 131.7. Airtel’s ARPU fall, however, was lower than Street estimates. Analysts had predicted a 7-8 per cent decline to Rs 97-98 levels.

In terms of subscriber base additions, Jio saw a 17.2 per cent rise to 252.3 million while Airtel reported a fall of 2 per cent on a sequential basis to Rs 329.6 million. Vodafone Idea, which still enjoys the largest subscriber base, reported a base of 422.3 million, down from 435.4 million in the previous quarter.

Bharti Airtel reported a consolidated net profit of Rs 1.19 billion for the second quarter. Jio beat most estimates by reporting net profit of Rs 6.8 billion for the September quarter, and operating revenue of Rs 92.4 billion.

Vodafone Idea, however, indicated that its board remained optimistic about the long-term outlook for the market and recognises that further equity funding is required in order to ensure that the company has sufficient balance sheet flexibility to successfully execute its strategy.

The board has constituted a committee of directors to evaluate potential routes for raising up to Rs 250 billion (around $3.5 billion) of equity.

The promoter shareholders, Vodafone Group and Aditya Birla Group, have indicated to the board that they would contribute up to Rs 110 billion ($1.5 billion) and Rs 72.5 billion ($1 billion), respectively, for scaling up the capital.