Auditors doubt Vodafone Idea's ability to make payments, continue as going concern

The auditors of Vodafone Idea have warned there is "significant doubt" on the loss-making telecom firm's ability to make payments and continue as a going concern.

Vodafone Idea's total external debt stands at Rs 1,91,588 crore (including interest accrued but not due and adjusted gross revenue liability). Of this, the next instalment of the AGR liability and debt amounting to Rs 16,853 crore (excluding amount classified from non-current borrowings to current maturities of long-term debt for not meeting certain covenant clauses) is payable in next 12 months, according to the auditors.

The telecom companies got a jolt last month when the Supreme Court dismissed their petitions seeking a review of the AGR dues as demanded by the Department of Telecom.

A few days ago, VIL filed another review petition in the Supreme Court, the outcome of which may be crucial for what steps it initiates next.

"The said assumption of going concern is essentially dependent on its ability to raise additional funds as required in line with the approval by the company’s board of directors in its meeting on September 4, 2020, successful negotiations with lenders for continued support/additional funding, monetisation of certain assets, outcome of the review petition filed with the Supreme Court and clarity of the next instalment amount, acceptance of its deferment request by DoT and generation of cash flow from its operations that it needs to settle/renew its liabilities/guarantees as they fall due," the auditors said in their assessment.

VIL reported a net loss of Rs 7,319.1 crore in the April-June quarter, which was lower than the loss of Rs 25,460 crore reported in the year-ago quarter, due to lower operating expenses and provisioning for adjusted gross revenue liability a year ago, but higher than the loss of Rs 7,022.8 crore in January-March.

The company's revenue from operations in the first quarter declined 14 per cent from a year ago and 4.7 per cent sequentially to Rs 9,152.3 crore. In the year-ago quarter, VIL had reported revenue of Rs 10,659.3 crore.

VIL's ARPU (average revenue per user) declined to Rs 104 in first quarter from Rs 107 in the March quarter.

The subscriber base was at 255.4 million in June, compared with 267.8 million in March. The 4G subscriber base stood at 112.9 million compared with 113.9 million in the same period.

Ravinder Takkar, the MD and CEO of VIL, said the severe second wave of COVID-19 caused significant disruptions and slowdown in economic activities.

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

However, given the uncertainty around payments of its dues and a possible moratorium, any deal with potential investors is yet to fructify, despite ongoing talks.

VIL said it achieved operating synergies worth Rs 8,400 crore with the merger of Vodafone and Idea. It is now targeting Rs 4,000 crore of annualised cost savings by the end of this calendar year.

Despite the financial woes, VIL has said it continues to invest in 4G to increase its coverage and capacity.

Kumar Mangalam Birla stepped down recently as the chairman of the company. He had written to the government in June that VIL was at "irretrievable point of collapse” if there was no immediate active support from the government.

Reports have suggested that the government is working on a relief plan for the telecom sector, but there has not been any official comment yet.