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Will Voda-Idea's five pillar strategy manage to revive its fortune?

September 04, 2019 09:59 IST

Vodafone Idea lost 115 million subscribers over the last four quarters.

Rating agency Care downgraded Vodafone Idea to Care A with a negative outlook on account of weak financial performance.

Crisil, too, downgraded credit value of Vodafone Idea.

Sohini Das reports.

Ravinder Takkar, an old hand at Vodafone Group who has served across the globe, has taken charge of operations of the beleaguered telecom major at a time when it is struggling to arrest its revenue fall, loss of customers and allay investor concerns as its stock continues to be bearish.

 

Vodafone Idea’s stock has fallen over 82 per cent since the merger in August last year.

Sources indicate that there is no major plan to move away from the 'five pillar' strategy the company had adopted around the time of the merger.

Instead, it would focus on executing it better.

The new managing director and chief executive officer, however, would be meeting all stakeholders and assess the situation.

Takkar was on the company’s board and has been playing a broader role. Now, he has to get hands on with operations on ground.

The five pillars include accelerating the integration, prioritising investments, driving average revenue per user (ARPU) through simplification, focusing on fast-growing revenue streams and partnership approach to drive value, and strengthening the balance sheet.

Some analysts feel there is a possibility that the company revisits its dual brand strategy and consolidate to a single brand to bring down marketing costs.

Takkar’s top priority at this point, however, would be to reverse the revenue decline, claim analysts.

In the June quarter, the revenue declined 4.3 per cent sequentially to Rs 11,270 crore when peer Reliance Jio grew by 5.2 per cent and became the market leader in the process (Rs 11,679 crore).

Vodafone Idea said the fall was due to a fall in its tariff and customer churn due to the introduction of the minimum recharge plans (towards the end of 2018).

In the June quarter earnings call, the telco said it had realised that the low average revenue per user (ARPU) customers recharge with Rs 35 or one of these vouchers once, second or third time and then start looking for better value somewhere else.

“For answering such needs, we have come up with a voucher of Rs 45, which we tested in four markets,” it said.

Vodafone Idea did not wish to share additional information to what was already stated in the call.

However, analysts felt the move might impact negatively, too, given the sustained customer churn the telco has experienced.

A Mumbai-based analyst said: “While Vodafone Idea is trying to arrest the customer churn as well as the revenue fall by offering better value to low ARPU customers and coming up with a higher value pack, the move may impact negatively given sustained subscriber churn.

"It hopes that more customers would shift to the Rs 69 pack and improve the ARPU.

"However, given the network issues the telco faces, customer churn is unlikely to end anytime soon,” he said.

SBICap Securities noted in a recent report that subscriber market share loss to continue given a selective 4G capex strategy, and another 20 per cent of the base may be vulnerable.

"Rs 45 tariff plan strategy may offer a short-term respite, balance sheet to deteriorate despite the recent fund-raising," it noted.

Vodafone Idea lost 115 million subscribers over the last four quarters.

According to SBICap, its net 4G subscriber addition as decelerated to 4.1 million in the June quarter versus 5.4 million in the previous quarter.

“In our view, data is no more a new service and consistent investments in network and brand by Bharti Airtel and Jio make it difficult for Vodafone Idea to regain lost share and sustain it,” SBICap analysts noted.

Some analysts also felt that Vodafone Idea may potentially scale back operations in some service areas.

“According to our calculation, Vodafone Idea's current cash-burn rate would imply the company's cash balance could reach very low levels by September 2020.

"We note that Vodafone Idea has announced its intent to monetise fiber assets, which, if completed, could provide some more headroom to the company," noted Goldman Sachs.

Nearly 29 per cent of the company's revenues come from ten service areas where it does not enjoy significant market share.

In order to rationalise costs and capex, Vodafone Idea may consider scaling back operations in these service areas which have lower profitability compared to the other circles.

In that case the company’s subscriber market share shrinks further.

As on June, Vodafone Idea had subscriber market share of 32.9 per cent, Jio of 28.4 per cent and Airtel of 27.5 per cent.

Vodafone Idea has adopted a district-level approach instead of the conventional approach of focusing on service areas.

It has segregated the districts in four quads based on their growth potential and revenue contribution to the company.

"In high potential districts which are part of Quad A and Quad B, our focus is to target 95 per cent coverage, superior customer experience and therefore higher market share,” it had said in the earnings call.

The company has achieved 70 per cent of the targeted Rs 8,400 opex synergies and the rest is expected to be accrued by first quarter of FY21.

"Incremental room for cost-cutting seems restricted though we see the company meeting 90 per cent of its opex synergy targets within this fiscal itself.

"One possibility is that it revisits its dual brand strategy and consolidates to a single brand in an attempt to bring down marketing costs.

"Such an approach may result in lower subscriber traction and, as such, we believe it is unlikely before Q4FY20,” noted SBICap Securities.

Moreover, while most analysts have noted in the recent past that at the current cash burn rate ($ 600 million or Rs 4,321 crore per quarter), Vodafone Idea may need to raise capital in another four to five quarters, the task seems to be getting difficult.

Earlier this month, two credit rating agencies downgraded the company.

Care downgraded Vodafone Idea to Care A with a negative outlook on account of weak financial performance.

Crisil, too, downgraded credit value of Vodafone Idea.

Photograph: Krishnendu Halder/Reuters

Sohini Das
Source: source
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