Vodafone Idea’s financial stress to impact various stakeholders; govt support critical: ICRA

The telecom industry had been facing headwinds since the launch of services by reliance Jio Infocomm Limited (RJIL) which manifested in a decline in revenue and profit generation. Further, the Adjusted Gross revenue (AGR) penalty added to the woes of the industry and has 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. As per an ICRA note, this stress on VIL is likely to impact financial as well as other stakeholders and can impact the industry structure.

For the ICRA sample of independent tower companies, VIL occupies a 35 percent tenancy share and 36 percent revenue share. In a situation of VIL shutting down operations, tower companies will have to face a loss of these tenancies, translating into revenue and ebitda decline for the industry. However, in that scenario, the existing 255 million subscribers of VIL will be taken up by the active telcos, who will have to expand their network presence to cater to a large additional subscriber base.

ICRA expects that the existing telcos will gradually take up only 40-50 percent of VIL’S tenancies and the total tenancies for the industry by FY2024 are likely to remain lower than FY2021 levels. the demand for loadings and high-power small cells is expected to remain elevated for the tower industry. Apart from tenancy loss, tower companies will also bear the brunt of write-offs for VIL’S receivables, which have been witnessing a steady increase lately. With this, while the debt metrics are likely to witness moderation, relatively low debt levels and the strong liquidity position of the tower companies are likely to alleviate these concerns to some extent.n