While Bharti Airtel has 135 million 2G users, 47 per cent of its total subscriber base of 283 million, Vodafone Idea
has 174 million 2G users, about 60 per cent of its total subscriber base of 291 million at the end of the March quarter.
Mayuresh Joshi, head of equity research at William O’Neil India, says: “Vodafone Idea
has the highest 2G subscriber base among the top three operators. This coupled with a weak financial situation and inability to commit large capex investment will make it the most susceptible to subscriber loss. The ongoing churn for Vodafone could accelerate if Jio is able to launch a smartphone at a substantially lower cost in partnership with Google.
Unlike Bharti Airtel which has recently raised capital and is comfortable on the net debt to operating profit metric, Vodafone Idea will find it difficult to protect its market share due to high leverage.
The company’s payouts going ahead include adjusted gross revenue (AGR) dues as well as deferred spectrum payments. Even with a deferred AGR payment, Motilal Oswal Financial Services estimates that the company would require an operating profit of Rs 30,000 crore in financial year 2021-22 to meet its capex, interest costs, deferred spectrum liability and part payment of AGR dues.
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The company is expected to generate less than half that operating profit in FY22 at Rs 13,200 crore.
This will require the company to raise its average revenue per user (ARPU) by 53 per cent to Rs 190 from Rs 121 at present. Given the higher share of entry-level and rural base, Vodafone has the lowest ARPU in the sector.
Angel Broking believes that increased subscriber churn without fixation of floor tariffs and no major relief from the Supreme Court on the AGR matter will make it difficult for Vodafone Idea to survive in the industry.
The stock of Vodafone Idea has slipped 16 per cent over the last two trading sessions.