InvestorQ : Do you agree with the recent Axis report that Vodafone may have a lot of challenges ahead?
Aditi Sharma made post

Do you agree with the recent Axis report that Vodafone may have a lot of challenges ahead?

Mahima Roy answered.
9 months ago

In a recent report on Vodafone, Axis Capital has pointed out that the company will require sharply higher levels of average revenue per user or ARPUs to even remain as a viable business. The report pegs the required ARPU hike needed at 80-85% from current levels.

Vodafone has a total obligation of Rs.53,500 crore towards AGR charges and spectrum charges payable to the government of India. Out of that, only Rs.7000 crore has been paid and the balance needs to be paid by the company in an equated manner over next 10 years.

That still requires the company to pay around Rs.4800 crore each month and that is a lot of money for which the company will need to report huge profits. That is the only way it can service that kinds of payouts, even assuming it is able to raise debt along the way.

The company recently raised Rs.25,000 crore but that may just be a stop gap arrangement. What the company really needs is a boost to its profitability and that is only going to be possible when the ARPUs move sharply higher from the current low levels of Rs.114.

According to conservative estimates, the company will be required to raise its tariffs by nearly 80-85% by 2022 to have a financially viable business model. That may sound easier said, than done, considering the competitive scenario it operates in.

Just a couple of week back, Vodafone and Idea had undertaken a major re-branding exercise and decided to brand and market their telecom services under the umbrella brand of Vi. The idea was to ensure greater synergies and also cost savings in the process.