Vodafone Idea's stressed balance sheet could impact lenders, employees and subscribers, says ICRA

Vodafone Idea's financial stress underlined by mounting losses and rising debt is likely to impact its financial lenders and have a bearing on employees and subscribers, ICRA said on Monday highlighting that government support is "critical" at this point. The support can be by way of deferment of spectrum dues, cut in levies, reduction in interest rates, and a combination of relief measures could aid financial profile and the structure of the industry.

"Vodafone Idea has been under financial stress as reflected by mounting losses and burgeoning debt levels, which is likely to impact its financial lenders as well as Government, apart from having a bearing on its employees, its subscribers and associated industries, most prominently towers," ICRA said in a statement.

In the event of VIL exit, the tower industry may be confronted with vacation of around 180,000 tenancies that the telco currently occupies.

Of these, only 40-50 per cent of the tenancies are expected to be regained by the tower companies over 18-24 months.

"The telecom industry had been facing headwinds since the launch of services by Reliance Jio Infocomm (RJIL) which manifested into decline in revenue and profit generation," ICRA said noting that Adjusted Gross Revenue (AGR) dues had added to the industry's woes.

Given the precarious position of the VIL balancesheet, material external support (primarily government) "might be necessary", it said.

The support could be in the form of deferment of spectrum dues, reduction in levies, reduction in interest rates, suggested ICRA.

Sabyasachi Majumdar, Group Head and Senior Vice President, ICRA, observed that as VIL owes Rs 23,400 crore to lenders and Rs 1,68,190 crore to government towards spectrum and AGR deferred dues as on June 30, 2021.

"Over the last 12 quarters starting Q2FY2019, VIL has been reporting sizeable losses. Further, with the addition of AGR liabilities, the debt has burgeoned to more than Rs 2 lakh crore as on June 30, 2021 (including lease liabilities)," Majumdar said.

This, along with churn in the subscriber base, mostly stagnant 4G user base, and pressure on ARPU levels have kept the revenue and profit generation muted, Majumdar pointed out.

According to Ankit Jain, Sector Head and Assistant Vice President, ICRA, the most effective relief can come in the form of extension of moratorium on spectrum dues beyond FY2022, a move that could result in deferment of dues payable in FY2023 to the tune of Rs 32,000 crore for the industry, of which Rs 16,000 crore are VIL's.

"Moreover, reduction in the levies paid by telcos, namely license fee and spectrum usage charges can also lift the EBITDA. A one per cent reduction in levies leads to annual saving of Rs 1,600 crore for the industry," Jain estimated.

Besides, measures such as reduction in interest rates on telecom department's dues, increasing spectrum allotment tenure and introduction of floor tariffs can also further aid the industry.

ICRA estimates that Re 1 increase in ARPU (Average Revenue Per User) translates into Rs 450-500 crore EBITDA accretion for the industry.

A combination of these relief measures could aid the financial profile and the structure of the industry, Jain said.

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