Can’t intervene to raise tariffs, Ravi Shankar Prasad tells Vodafone-Idea
Telecom minister Ravi Shankar Prasad has just told Voda-Idea to set its house in order by itself.
“In a recent meeting with the minister, Vodafone Idea top executives, including chairman Kumar Mangalam Birla and CEO Ravinder Takkar, highlighted the cash flow challenges faced by the telco, and how a rise in tariffs could turn the sector around, and help the telco as well,” a person privy to the meeting told ET.
However, the minister is believed to have said that since tariffs were not under the domain of the Department of Telecommunications (DoT) and is the prerogative of the Telecom Regulatory Authority of India (Trai), there wasn’t anything he could do about it. He further noted that tariffs are under forbearance in any case.
“Acknowledging the competitiveness of the telecom industry, the minister told the executives that the company needed to take internal measures to deal with competition,” the person said.
Birla, also the chairman of the Aditya Birla Group, one of the parents of Vodafone Idea, had called on the minister along with Takkar soon after Vodafone Idea CEO took over from Balesh Sharma last month.
Vodafone Idea, in a statement to ET, described the meeting as “a courtesy call” following the appointment of Takkar as the MD and CEO of the mobile phone operator.
While refusing to intervene in the matter of pricing, Prasad though agreed that the overall industry was under financial stress with high debt and falling revenue.
As reported by ET in its August 23 edition, Prasad has written to finance minister Nirmala Sitharaman, urging for measures to ease the payout burden on the telecom industry by offsetting spectrum and other payments to the government against the accumulated Rs 36,000 crore input tax credit that has been lying with the Centre. Besides seeking a cut in the universal services obligation (USO) levy to 3% from the current 5%, which would effectively reduce the licence fee to 6% from the current 8%, Prasad also proposed a reduction in the GST rate, first to 12% and then lowering it further, from the current 18%.
Reliance Jio Infocomm is the only profitable telco in India, with both Vodafone Idea and Bharti Airtel in the red for the India mobile phone operations. In fact, losses at Vodafone Idea have dragged the Aditya Birla Group into losses at the group level in the fiscal year ended March 2019, as well as the April-June quarter of FY20.
The telco—created by the merger of Vodafone India and Idea Cellular—posted a consolidated loss of Rs 4,873.9 crore for the June 2019 quarter, while its revenue fell over 4% sequentially, despite a rise in average revenue per user (ARPU), as it lost 14 million users. Debt at June end was around Rs 99,300 crore, factoring in a rights issue of Rs 25,000 crore, but its debt to Ebitda ratio was still at 20 times, and was described “uncomfortable” by CLSA.
Kotak Institutional Equities, in a recent report, said Vodafone Idea, weighed down by heavy debt and spectrum repayment dues, may need another round of equity infusion by the second quarter of FY21 to plug a potential Rs 7,600 crore (about $1.06 billion) funding gap.
And the ways to avoid another equity infusion would require a bunch of positives—starting with a steep recovery in ARPU, backed by tariff increase, rake in over Rs 10,000 crore from monetisation of fibre assets and refinance debt coming up for repayment, it said.
The brokerage estimates Voda Idea’s cumulative cash inflows over the next seven quarters—from July-September FY20 to January-March FY21—add up to Rs 25,900 crore. If the company’s Rs 21,200 gross cash balance, as of end-June, is clubbed, total cash with the company is estimated at Rs 47,100 crore.
Kotak pegs Voda Idea’s (cash) outflows over the same period at a whopping Rs 54,700 crore—towards a combination of capex, deferred spectrum payouts, non-spectrum debt repayments and ex-spectrum interest payments—“implying a Rs 7,600 crore funding gap”.