Vodafone Idea Says Minimum Revenue Per User Plan Is Working

Vodafone Idea Ltd. said its plan to charge a minimum monthly amount from users had a “net positive impact” on its revenue for December and January.

The company, which became the country’s largest telecom operator due to the consolidation caused by the entry of Reliance Jio Infocomm Ltd., had introduced a minimum average revenue per user scheme to focus on better-paying users. Vodafone Idea, along with Bharti Airtel Ltd., fights a tariff war triggered by India’s newest wireless carrier’s dirt-cheap pricing.

“While the weeding out of low-value customers is expected to support ARPU, the same is going to reflect in ensuing quarters post integration across all circles,” the company’s management said at an analyst meet on Wednesday.

The merger synergies are on track and the company is doing whatever is in its control to drive margin, its management said, adding that the operator continues to face challenges in the form of weak operating cash flows and high debt as well as capex. The management, however, said it is optimistic in riding the tide.

Motilal Oswal’s Telecom Analyst Aliasgar Shakir is bullish on the stock with a target of Rs 40. Shakir said the company’s positive stance is mainly premised on healthy promoter-backing and the strong operating leverage opportunity from any ARPU increase.

Meanwhile, Pranav Kshatriya, an analyst at Edelweiss, suggested maintaining a cautious stance on the stock given the company’s underwhelming capacity expansion plans and high leverage.

Here are the key highlights from the analyst meet.

• Company looking to meet debt obligations and carry out planned network investments with the proposed capital infusion of Rs 25,000 crore.
• The company requires Rs 60,000 crore of funds towards capex, spectrum liabilities and external debt servicing.
• Rs 60,000 crore of funds will be sourced via Rs 25,000 crore rights issue, Rs 5000 crore stake in Indus Towers, cash of Rs 13,600 crore and cumulative Ebitda of Rs 20,000 crore over eight quarters.
• The entity is adequately funded for the next two years despite capital needs for network investments
• Integration process is on track to get in Rs 8,400 crore in annual synergies by FY21.
• Taking a tariff hike in the current market situation is unlikely.
• Network synergies, minimum recharge voucher program and accelerating shift from 2G to 4G should drive Ebitda growth. The company sees cumulative Ebitda of Rs 20,000 crore in next eight quarters.
• Minimum recharge vouchers should arrest the high churn.
• Expect three strong players with over 30 percent market share over the long term.