Vodafone Idea falls 6% as CRISIL downgrades NCD rating

The immediate priority of the merged entity will be to consolidate its position across the range of service offerings
Shares of Vodafone Idea dipped 6% to Rs 35.60 per share on the BSE after the rating agency CRISIL downgraded its rating on non-convertible debentures (NCD) of Rs 60 billion.

“The downgrade reflects continued pricing pressure in the mobile telephone industry, leading to weak operating performance of Voda-Idea. The company reported pro-forma earnings before interest, tax, depreciation, and amortisation (EBITDA) of Rs 23.49 billion for the first half of fiscal 2019, against a pro-forma EBITDA of Rs 119.08 billion for the full year of fiscal 2018. Synergy benefits of the merger are expected to improve the EBITDA over the medium term. The timely realisation of synergy benefits will be a key monitorable,” CRISIL said in a rating note.

CRISIL believes the credit risk profile of the combined entity will continue to be affected by competition, while the quantum and timeliness of synergy benefits will be key rating sensitivity factors. Moreover, the support provided to the combined entity by its sponsors, Vodafone and ABG, will remain a key monitorable, it added.

The domestic telecom industry is witnessing intense price competition after Reliance Jio Infocomm launched its services. Average revenue per user (ARPU) per month declined to Rs 88 for Voda-Idea for the quarter ended September 30, 2018, from Rs 145 and Rs 132 for Vodafone India and Idea Cellular, respectively, for the corresponding period of the previous fiscal. This led to a significant decline in operating margin of the combined entity to 9.4% during the first six months of fiscal 2019 from 18% in fiscal 2018 on a pro-forma basis.

CRISIL believes Voda-Idea's credit risk profile may be further impacted by continued competition, while the quantum and timeliness of synergy benefits will be key monitorable.

In past six trading days, shares of Vodafone Idea were slipped 20%, as compared to 3% rise in the S&P BSE Sensex. The stock hit a 52-week low of Rs 32.55 on October 8, 2018, on the BSE in intra-day trade.


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