The Vodafone-Idea merged entity is likely to face a tough time defending its market share and holding on to its high-ARPU data customers as it may be unable to make comparable capex infusions in augmenting 4G network capacity for fighting Airtel and Jio Infocomm due to its high leverage and sizeable combined debt levels, analysts said.
Leverage results from using borrowed money, and a highly leveraged company is one with more debt than equity. “The Vodafone-Idea merged company will find itself constrained to invest in the business on account of high leverage,” Credit Suisse said in a note
Brokerage JM Financial, in turn, expects the Vodafone-Idea combined entity to “start on a weaker-than-expected wicket with a net debt estimated at ₹1,150 billion (₹1.15-lakh crore) on Day 1”, especially with Idea Cellulars financials “continuing to deteriorate sharply” ahead of its merger with Vodafone India that is nearing completion.
Kumar Birla-led Idea on Monday reported a ₹263.6 crore net profit in the June quarter, largely on the strength of a one-time exceptional gain from sale of its captive towers business to American Tower Corp. Without the tower arm sale proceeds, the number 3 telco would have suffered a huge net loss, given the significant deterioration in its operating performance, reflected in the 34.5% sequential fall in earnings before interest, tax, depreciation & amortization (Ebitda) to ₹659.5 crore in the April-June quarter, analysts said.Shares of Idea fell over 6% to close at ₹54.90 on the BSE on Tuesday, a day after the telco reported a weak operational performance in the quarter ended June.