Latest News | Vi Stares at Bleak Future; High Competition to Delay Price Hike by Telcos: Brokerage Report
Get latest articles and stories on Latest News at LatestLY. Vodafone Idea or Vi stares at a bleak future, including the possibility of "shutting shop" due to factors triggered by heightened competition, a domestic brokerage said on Monday.
Mumbai, Mar 27 (PTI) Vodafone Idea or Vi stares at a bleak future, including the possibility of "shutting shop" due to factors triggered by heightened competition, a domestic brokerage said on Monday.
It also expects telecom companies to start hiking tariffs only after the general elections in June 2024 amid inflation staying above the RBI's upper tolerance level.
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In the absence of the price hikes, Vi will not be able to keep up with the investments required and launch 5G services, which will lead to an erosion of subscribers and make the planned capital raising exercise difficult, the report by Kotak Institutional Equities said.
The long-feared prospect of a "duopoly", with only Reliance Jio and Bharti Airtel remaining in the fray, is likely to play out, the report said.
The brokerage said it now expects telcos to start tariff hikes only after the conclusion of the general elections in June 2024 and added that factors contributing to the prospect include headline inflation staying above the RBI's comfort band and state elections.
At present, the deep-pocketed Jio's renewed aggression is being matched by Airtel, as both the telcos seek to garner premium subscribers, it said, adding Jio's new family postpaid plans effectively caps monthly outgo at Rs 205-235 per month for customers, and would likely delay the prospects of a tariff hike and 5G monetisation.
"A delayed tariff hike while negative for the sector would hurt Vi's survival hopes the most, and could effectively lead to a duopoly," it said.
Vi's needs funds to invest in increasing 4G coverage and 5G rollout, it said, warning that not investing will lead to further erosion in market share.
"According to our estimates, Vi stares at a cash shortfall of Rs 5,500 crore over the next 12 months and a delay in tariff hike/fund-raise, could lead to Vi shutting shop," it said.
The brokerage also suspended the rating on Vi, making it clear that given a large debt of over Rs 2.3 lakh crore, which continues to rise, and further potential large dilution in market share, the fundraising would "remain an uphill battle".
Lots of voices have been flagging concerns about a potential duopoly in the sector, which has seen exits by many players in the last decade or so. Vodafone and Aditya Birla Group's Idea merged in the face of the challenging market and has been going through choppy waters.
The brokerage report said Airtel is already at a premium to Jio on the headline prices in most packs, and taking a unilateral tariff hike as it did on minimum recharge packs recently seems "difficult" going forward.
The delayed tariff hikes will impact both profitability and revenues for the telcos, it said.
The Vodafone Idea scrip closed 3.67 per cent down at Rs 6.04 apiece on the BSE on Monday, as against gains of 0.22 per cent on the benchmark.
(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)