Cost cutting is not helping Vodafone Idea, fresh funds might ⁠— but ‘nothing is coming’

Jul 5, 2021, 18:59 IST

BCCL

Multiple factors like tariff hike, promoters’ support, government relief on adjusted gross revenue (AGR) dues and large fundraising need to come in place for Vodafone Idea to survive, says an analyst.
Though the company has seen marginal improvement in 4G subscriber base, it is too little to make any difference, as per ICICI Securities.
A consortium of lenders to Vodafone Idea has reportedly sought the finance ministry’s intervention to provide some relief to the cash strapped operator who is struggling to pay dues on time.

The Aditya Birla-backed telecom operator Vodafone Idea seems to have hit a rock bottom with high debt levels and loss figures. The third biggest telecom player, after Airtel and Reliance Jio, in India desperately needs funds, but as stand-up comedian Russell Peters’ famous punchline goes, “nothing is coming”.

The company is now crying out for help from the government for an extension to pay adjusted gross revenue (AGR) dues.

While the company is struggling to raise funds from investors, The Economic Times, on Monday (July 5), reported that the cash-strapped telecom company Vodafone Idea is planning to sell off a bunch of its assets to raise $1 billion.

The company has asked for one more year’s time to make spectrum payment of ₹8,292 crore because it is not generating enough cash, as per ET report.

However, in the last few years the company did take efforts to cut down on its expenses and make way for more cash in hand. But these measures fell short.

In the cost cutting process for the past few years, the company laid off 1,500 permanent employees in August 2020 to cut operational costs, according to The Economic Times (ET).

Months after it laid off 1,500 employees, Vodafone Idea’s ₹7,022 crore loss in the January-March 2021 quarter is a clear reflection that cost cutting is not helping.

Some other cost cutting measures that the company underwent included reorganisation of distributor and tower networks to increase its operating efficiency, reduction in advertising and marketing spending, a hiring freeze and letting go of redundant offices across circles.

However, the company has been able to cut just about 5% of its total expenses in the last two financial years. Expenditure data from its March 2021 results show that the company has heavily cut down on its marketing strategies and customer acquisition models followed by varied expenses. However, its finance cost has increased by 17% during the period.

The table below shows the company’s total expenses since 2017:
(in ₹ crore)

The telecom operator is in a larger problem that cannot be solved by just a decent fundraise.

“Multiple factors like tariff hike, promoters’ support, government relief on adjusted gross revenue (AGR) dues and a large fundraising that supports the company for a longer period of time needs to come in place for Vodafone Idea to survive,” Himanshu Shah, telecom analyst at Dolat Capital, told Business Insider.

The company has been actively looking to raise funds for some time, but fundraising efforts have not borne any fruits as investors are wary of infusing funds in such a debt heavy sector.

A consortium of lenders to Vodafone Idea has sought the finance ministry’s intervention to provide some relief to the cash strapped operator who is struggling to pay dues on time, said a report by ET.

In the June letter to department of telecom, the company had said, “We are working on raising new funding for the last six months, but the investors are not willing to invest in the company because they believe that unless there is significant improvement in the consumer tariffs, the health of the industry will not recover and they will incur a loss on their investment said.”

The company has asked for one more year’s time to make spectrum payment of ₹8,292 crore because it is not generating enough cash, as per ET report.

Meanwhile, the company’s debt is piling up. As the auditors stated in the March quarter result, if Vodafone Idea’s dues are not cleared on time it will be a ‘material uncertainty’, which will hinder the company's existence.

Net debt rose from ₹1.12 lakh crore in FY20 to ₹1.73 lakh crore in FY21.