Published: 27th Sep 2024
By: Value Research
Vodafone Idea is notorious for its consistent losses. Also, its subscriber count has consistently declined. Yet, its FPO was oversubscribed 6x. This made us curious, and we decided to check if it could turn profitable.
To check if it can ever entice profits, we decided to make some optimistic assumptions. Swipe to know these assumptions.
Between FY20-24, Vodafone's total subscribers dropped 7% annually, mainly due to falling 2G demand, but its 4G subscribers grew 5% yearly. Hence, we expect the overall subscriber count to not dip severely.
As of FY24, Vodafone had 213 million subscribers, with 40% (86 million) on 2G. We expect 25% of these 2G users to switch to 4G, as most use basic phones without 4G access.
Bharti Airtel’s Chairman, Sunil Mittal, expects telecom tariffs to rise 25% soon. Vodafone Idea is likely to follow, potentially boosting its 4G ARPU from Rs 194 to Rs 300. However, 2G ARPU remains low at Rs 73, with no major change expected as 2G phases out.
Based on these assumptions, Vodafone Idea's annual revenue could reach Rs 60,000 crore, calculated from 2G and 4G ARPUs and subscriber counts for FY24. With stable costs due to high operating leverage, the company could achieve an EBIT of Rs 13,000 crore, indicating potential operating profitability. However, challenges remain beyond this point.
While operating profits may be within reach, net profitability remains a challenge. Vodafone Idea would still face a net loss of Rs 12,000 crore before tax, largely due to its Rs 25,000 crore interest burden.
However, in FY24, its net loss was reduced to Rs 5,500 crore thanks to debt-to-equity conversions. Continued conversions could further lower interest costs, potentially improving its bottom line.
Despite the possibility of profits, you should exercise caution before investing. To know why, read the full story by clicking on the link below.