Vodafone Idea blames Covid for Q1 weakness, still looking for investors

Vodafone Idea has turned in another disappointing set of quarterly results but, despite once again expressing doubts about its ability to continue operations, has blamed the Covid-19 pandemic for its weak performance.

The troubled Indian telco did its best to big up data volume growth in the three months to the end of June, which it insists shows strong consumer engagement, but the headlines were all about a hefty revenue slide – turnover was down 14% year-on-year to 91.5 billion rupees (US$1.2 billion) – and earnings decline, although admittedly the firm’s EBITDA margin increased.

The operator also remains in the red, a net loss of INR73.1 billion being a sizeable improvement on Q1 last year, when its bottom line was hit by one-off items, but its worst profit performance in the past four quarters.

The severe second wave of Covid caused significant disruptions and slowdown in economic activities,” said Vodafone Idea chief executive Ravinder Takkar. Specifically, the company blamed the severe second wave of the pandemic in parts of India for an economic slowdown, which directly affected its revenues.

While that is, of course, a fair point, it’s also worth noting that Vodafone Idea’s figures make much more uncomfortable reading than those of its major rivals.

“We continue to focus on executing our strategy to keep our customers ahead, and our cost optimization plan remains on track to deliver the targeted savings. We are in active discussion with potential investors for fund raising, to achieve our strategic intent,” Takkar said.

Vodafone Idea, which has operated under the Vi brand for the best part of a year, included the by now customary statement in its quarterly report that indicates the extent of its financial problems.

“There exists material uncertainty relating to the group’s ability to continue as a going concern which is dependent on its ability to raise additional funds as required, successful negotiations with lenders on continued support/additional funding, monetisation of certain assets…” etc. It’s the same statement we have seen in the past few quarters. Just to recap, as well as hefty debt repayment obligations, the telco owes the government something like US$20 billion in spectrum payments and adjusted gross revenue (AGR) dues. And its financial performance speaks for itself.

Earlier this month Indian businessman Kumar Mangalam Birla stepped down as non-executive chairman of Vodafone Idea, having previously offered to hand over his stake in the company to the government for free, in order to keep it operational.

Subsequently, reports emerged that Vodafone itself was considering a similar plan, but the telco insists the rumours relate to one of Vodafone Idea’s promoters rather than to itself and has therefore declined to comment.

Whatever the truth of the matter, it is starting to feel like a ‘no smoke without fire’ situation.

Equally, something has to happen before too much longer. It is by now clear that Vodafone Idea cannot keep operating as it is. Whether the company successfully brokers asset sale deals, brings in new investors, or effectively become a government entity, it has to do it fairly soon. The status quo is unsustainable.

In the meantime, the telco is doing its best to present a credible public face in India. According to India’s The Telegraph, Takkar recently sent out a message to customers thanking them for their support and reassuring them that his company is committed to offering “superior services and best-in-class propositions.”

The paper notes that there was no mention of the company’s myriad issues in the missive though…unsurprisingly.

The chief exec referenced the pandemic in his message and the launch of the Vi brand, which took place last September. “[Vi] in a short span of less than a year has become a brand you love,” the paper quotes him as saying.

The customer exodus from Vi does not support that statement though. The telco lost 24.4 million subscribers in the year to the end of June. Let’s see if Takkar’s reassurance efforts can help turn the tide.