Vodafone-Idea may find it difficult to protect its market share: analysts

The emerging entity Vodafone-Idea is expected to face difficulties in defending its market share and retaining its clients with high ARPU data as it may not be able to achieve comparable CAPEX infusions to increase the company's capacity. 4G network against Bharti Airtel and Reliance Jio Infocomm because of its high debt and its large combined debt level, according to badysts.

The leverage resulting from the use of borrowed money and a highly leveraged company is one that has more debt than equity.

"The merged company Vodafone-Idea will be forced to invest in the company because of its high debt," said Credit Suisse in a note published by ET.

Brokerage JM Financial, in turn, expects the combined entity Vodafone-Idea "to start on a wicket weaker than expected with a net debt estimated at Rs 1,150 billion (Rs 1, 15-lakh crore) Day 1 ", in particular The financial situation of Idea Cellular" continues to deteriorate sharply "before its merger with Vodafone India which is nearing completion.

The idea of ​​Kumar Birla conducted on Monday reported a net profit of 263.6 million rupees in the June quarter, largely thanks to a one-off punctual gain from the sale of its captive tours business to American Tower Corp.

Without the proceeds of the sale of the towers, the No. 3 mobile operator would have suffered a huge net loss, given the significant deterioration in its operational performance, reflected in the sequential decline of 34.5 % of earnings before interest, taxes, depreciation and amortization (Ebitda) at Rs 659.5 crore in the quarter of April-June, badysts said.

Idea shares fell more than 6% to close at 54.90 rupees on BSE Tuesday, a day after the telephone company reported a weak operating performance in the quarter ended June.

Bank of America-Merrill Lynch said that "the merged entity would be vulnerable to market share losses because Jio and Bharti are ahead of Vodafone and Idea in data investment, and are likely to debauch their clients".

Broker JP Morgan stated that "Idea and Vodafone India both demonstrated the archetypal conservative behavior of two debt-stressed businesses before a major merger."

Analysts estimate that the immediate differential financing needs of the merged entity will rise to Rs 10,000 crore, in addition to debt repayment commitments.

"Although funded for maximum competitive intensity, the company's debt ratio, estimated at 6.6 times EBITDA by fiscal year 21, will remain uncontrollable and leaves little room for a further decline in the operating result ". says in a note.

Jefferies said the capital levels of the merged Vodafone-Idea entity are expected to increase substantially to match the capacity generation (network) of peers (read: Airtel and Jio).

The modest expenses of Idea at Rs 980 crore in April-June are well below the 8,200 crores of Airtel and the crore expenditure of 17,000 rupees of Jio last quarter.

"With Idea and Vodafone losing postpaid subscribers, we think the mixed ARPU will experience a sharper decline," said the foreign broker.
[19] Credit Suisse has stated that the trend of closing a business is the most worrisome: Aditya Birla Group's telecom group posts a slight increase of 1.1 million euros over the quarter . run rate of 3 million (adds) for Bharti Airtel and 9 million for Jio ".

In the immediate future, JP Morgan said: "It is essential for Idea to pbad its fair share of subscribers to 4G to improve global ARPUs if overall industry prices do not improve.