Cost reduction does not help Vodafone idea, new funds could – but “nothing comes”
  • Multiple factors such as price hikes, promoter support, government relief on Adjusted Gross Income (AGR) contributions and significant fundraising must be in place for Vodafone Idea to survive, analyst says .
  • Although the company has seen a marginal improvement in the 4G subscriber base, it’s too little to make a difference, according to ICICI Securities.
  • A consortium of Vodafone Idea lenders have reportedly requested the intervention of the Ministry of Finance to provide some relief to the cash-strapped operator who is struggling to pay his contributions on time.

The Birla-backed Aditya telecom Operator Vodafone Idea appears to have bottomed out with high debt levels and high loss figures. India’s third largest telecommunications player, after Airtel and Reliance Jio, is in desperate need of funds, but as comedian Russell Peters’ famous punchline puts it, “nothing comes”.



The company is now seeking government assistance for an extension of the payment of Adjusted Gross Income (AGR) contributions. The company has asked for one more year to make the spectrum payment of 8,292 crore’s because it is not generating enough cash, according to the ET report.

However, in recent years, the company has made efforts to cut expenses and make room for more cash on hand. But these measures failed.

In the process of cutting costs in recent years, the company laid off 1,500 permanent employees in August 2020 to reduce operational costs, according to
Economic times (ET).

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Months after laying off 1,500 employees, Vodafone Idea’s 7,022 crore loss in the January-March 2021 quarter clearly shows that cutting costs is not helping.

Some other cost-cutting measures the company suffered included reorganizing the distributor and tower networks to increase operational efficiency, reducing advertising and marketing expenses, a hiring freeze, and the elimination of laid-off offices in all circles.

However, the company has been able to cut approximately 5% of its total expenses over the past two years. Expenditure data for March 2021 results show that the company has sharply reduced its marketing strategies and customer acquisition models followed by various expenses. However, its financial cost increased by 17% during the period.

The table below shows the company’s total expenses since 2017:

(in ₹ crore)

The telecommunications operator faces a larger problem that cannot be solved by simple decent fundraising.

“Multiple factors such as price hikes, promoter support, government relief on Adjusted Gross Income (AGR) contributions and significant fundraising that sustains the business for a longer period must be put in place. in place for Vodafone Idea to survive, “Himanshu Shah, telecoms analyst at Dolat Capital, told Business Insider US.

The company has been actively seeking fundraising for some time, but fundraising efforts have not borne fruit as investors are reluctant to inject funds into such a leveraged industry.

A consortium of lenders at Vodafone Idea have requested the intervention of the Ministry of Finance to provide some relief to the cash-strapped operator struggling to pay its dues on time, according to a report by
AND.

In the June letter to the telecommunications department, the company said, “We have been working on raising new funding over the past six months, but investors are unwilling to invest in the company because they believe that at least. unless there is a significant improvement in consumer tariffs, the health of the industry will not recover and they will suffer a loss on their investment, he said.

During this time, the debt of the company is piling up. As the auditors noted in the March quarterly results, if Vodafone Idea’s dues are not paid on time, it will be a “material uncertainty” which will hamper the existence of the business.

Net debt went from ₹ 1.12 lakh crore during FY20 to ₹ 1.73 lakh crore during FY21.

Cutting costs does not help Vodafone Idea, new funds could - but

(in ₹ crore)



The telecommunications operator faces a larger problem that cannot be solved by simple decent fundraising.

“Multiple factors such as price hikes, promoter support, government relief on Adjusted Gross Income (AGR) contributions, and significant fundraising that sustains the business for a longer period must be put in place. in place for Vodafone Idea to survive, “Himanshu Shah, telecommunications analyst at Dolat Capital, told Business Insider.

The company has been actively seeking fundraising for some time, but fundraising efforts have not borne fruit as investors are reluctant to inject funds into such a leveraged industry.

A consortium of lenders at Vodafone Idea have requested the intervention of the Ministry of Finance to provide some relief to the cash-strapped operator struggling to pay its dues on time, according to a report by
AND.

In the June letter to the telecommunications department, the company said, “We have been working on raising new funding over the past six months, but investors are unwilling to invest in the company because they believe that at least. unless there is a significant improvement in consumer tariffs, the health of the industry will not recover and they will suffer a loss on their investment, he said.

During this time, the debt of the company is piling up. As the auditors noted in the March quarterly results, if Vodafone Idea’s dues are not paid on time, it will be “material uncertainty”, which will hamper the existence of the business.

Net debt has increased from 1.12 lakh crore in FY20 to 1.73 lakh crore in FY21.

Shares of Vodafone Idea closed almost 3% lower at 8.80 yen on July 2 amid concerns over the company’s survival.

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