Vodafone Idea’s financial stress to impact various stakeholders, government support critical: ICRA

Vodafone Idea's financial stress due to mounting losses and rising debt is likely to impact its financial lenders, government, employees and subscribers, ICRA said on Monday.

Emphasising that the government support is "critical" at this point, ICRA said the support can be in the form of deferment of spectrum dues, reduction in levies and reduction in interest rates

"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 the 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 Limited (RJIL) which manifested into a decline in revenue and profit generation.

Further, the Adjusted Gross Revenue (AGR) penalty added to the woes of the industry and have kept the debt levels elevated. Owing to the aforementioned reasons, the financial position of Vodafone Idea Limited (VIL) has been deteriorating due to mounting losses and increasing debt levels, the ICRA said.

The stress on VIL is likely to impact financial as well as other stakeholders and can impact the industry structure, the ICRA said.

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

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

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