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Vodafone Idea Ltd
NSE:IDEA

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Vodafone Idea Ltd
NSE:IDEA
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Earnings Call Analysis

Q2-2024 Analysis
Vodafone Idea Ltd

Moderate Revenue Growth and Strong 4G Additions

The company witnessed a growth in its 4G subscriber base to 124.7 million, marking the highest increase in the last eight quarters. Despite a recent history of subscriber losses, this period saw the lowest decline at 1.6 million, indicating turning tides. Revenue slightly improved by 0.6% quarter-on-quarter, reaching INR 107.2 billion. Furthermore, the firm reported its ninth consecutive quarter of Average Revenue Per User (ARPU) growth, signaling solid operational progress and a potent competitive stance once pending investments are actualized.

Vi App Drives Customer Engagement and Digital Ecosystem Focus

The company continues to develop its offerings on the Vi App, which has seen substantial transformation over the past year. The improvement has been marked by industry-leading customer ratings on the Play Store. The introduction of Vi One, a bundled plan incorporating mobility, fixed broadband, and content, represents an industry-first for prepaid customers. This offering has been piloted in 12 cities and is expected to expand, which underscores the company's commitment to providing convenient and value-rich services to enhance customer retention and monetization opportunities.

Financial Highlights Signal Upward Revenue and Subscribers

The company's revenue for the quarter showed a modest quarter-on-quarter increase of 0.6% to INR 107.2 billion, attributed to a better mix of subscribers and additional 4G subscribers. The Average Revenue Per User (ARPU) also improved, and the data usage trend remained positive. EBITDA, excluding certain accounting effects, increased slightly from INR 20.2 billion to INR 20.6 billion. Capital expenditures were controlled at INR 5.2 billion, while the company reported a significant net debt position of INR 2,126.6 billion.

Automotive Sector Dominance and Tax Provisioning

The company maintains a strong position in the automotive sector aided by the Vodafone Group's leadership and involvement in value-added IoT applications. A recent Supreme Court ruling concerning tax methodology on revenue share license fees resulted in a tax provision of INR 8.2 billion, with additional interest charges being accounted for separately.

Promoter Support and Expectations

Despite not receiving direct financial contribution from promoters in the previous quarter, they have stated their willingness to provide up to INR 2,000 crore in support. This support is anticipated to conclude in the current quarter, alongside potential tie-ups with external investors.

Prudent Pricing and ARPU Growth Through High-Value Customers

With the exception of one entry-level price change, the company has not enacted significant pricing interventions since December 2021. The ARPU growth is attributed to customers upgrading to higher-tier plans, with most customer churn occurring at the lower ARPU segment. The company also witnessed a marginal net addition in the postpaid subscriber category, showcasing the appeal of its premium offerings.

Liabilities Management and Strategic Stake Clarifications

The company clarified that a portion of its debt, specifically INR 1,600 crores of Optionally Convertible Debentures (OCDs), may not require servicing if they are converted. Additionally, a significant portion of the company's bank debt is described as amortizing. The company also addressed a query about selling their stake in a vendor entity, with the executive clarifying that Vodafone Idea does not hold a stake in Indus, and such decisions are within the purview of the Vodafone Group.

Forward-Looking Statements Emphasize Growth-Focused Investments

The management highlighted that any forthcoming capital would be prioritized towards growth capital expenditures, with a focus on expanding 4G coverage and rolling out 5G capabilities to remain competitive. Efforts continue for further fundraising, both debt and equity, to support the company's strategic investments. Despite limited past investments, the company has seen some performance improvements but anticipates more significant enhancements as future investments materialize.

Earnings Call Transcript

Earnings Call Transcript
2024-Q2

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Operator

Good afternoon, ladies and gentlemen. This is Zico, the moderator for your conference call. Welcome to the Vodafone Idea Limited Conference. [Operator Instructions] Please note that this conference is being recorded.

We have with us today Mr. Akshaya Moondra, CEO of Vodafone Idea Limited; and Mr. Murthy GVAS, CFO of Vodafone Idea Limited, along with other key members of the senior management on this call.

I want to thank the management team on behalf of all the participants for taking valuable time to be with us. Given that the senior management is on this conference call, participants are requested to focus on the key strategic and important questions to make sure that we make good use of the senior management's time.

I must remind you that the discussion on today's call may include certain forward-looking statements and must be viewed, therefore, in conjunction with the risks that the company faces.

With this, I now hand the conference call over to Mr. Akshaya Moondra. Thank you, and over to you, sir.

A
Akshaya Moondra
executive

Thank you, Zico. A warm welcome to all participants to this earnings call. Last week, our Board of Directors adopted the unaudited results for the quarter ending September 30, 2023. All the results-related documents are available on the website, and I hope you have a chance to go through the same.

Let me provide a brief on our strategic initiatives and key highlights for the quarter. Post this, I will hand over to Murthy to share details on the company's financial performance.

Let me first talk about recently concluded India Mobile Congress, wherein the company through partnerships and with ecosystem players has developed a diverse range of use cases across enterprises, consumers and community development, showcasing the transformative power of next-gen technology and the 5G network.

The Vivo presented an array of cutting-edge solutions under the theme, innovations for a better life. We also showcased first-ever advanced IoT solutions, Sanchar Shakti, to make the ports of the company's country smarter, connected and more efficient at par with the world's best infrastructure.

Developed in partnership with a couple of startups, Sanchar Shakti solution is designed to propel the Honorable Prime Minister's ambitious Gati Shakti masterplan into reality by enabling an end-to-end journey of seamless flow of goods from port to the last mile with IoT, private 5G shaping and next-gen technology.

As one of the pioneers in delivering IoT-enabled growth in India, we are committed to continue developing an IoT-centric ecosystem and empowering MSMEs in their digital transformation journey with our ReadyForNext solutions. We are poised for next phase of growth with next-gen technologies that will assure in a connected world with boundless digital innovative solutions across various sectors.

We are confident about bringing a significant transformation in customer experience, drive operational efficiency and improve business performance for our partners and consumers which further will positively impact the growth of the Indian digital economy.

Further, we showcased our curated ReadyForNext2.0 solutions like CPaaS, colocation and cloud services, which can help SMEs on their digitization journey. We continue to use the innovation and technology for public good across livelihood, education and digital financial literacy.

Moving on to update on our strategic pillars. The first priority area for us is focused network investment. While our network investments have been impacted on account of liquidity constraints, we continue to upgrade the existing non-4G sites to 4G by spectrum refarming. Over the last 1 year, we have added more than 800 unique 4G towers and over 5,800 4G broadband sites.

As a result, our broadband coverage as well as capacity has expanded. This helps us in utilizing our CapEx effectively while ensuring that we continue to offer superior customer experience in these areas as we continue to follow a focused approach to investment biased towards our 17 priority focus which contribute over 98% of our revenue and around 92% of industry revenue.

Our relentless pursuit to offer better 4G experience to our customers is clearly visible through these network investment initiatives. We also have the highest rated voice quality in the country as per TRAI MyCall app data for 30 out of 35 months between November 2020 and September 2023.

On 5G, we are in discussion with various network vendors for finalization of our rollout strategy. We continue to work with various partners to develop use cases and build device ecosystem.

Moving on to market initiatives. Our brand, Vi, continues to garner good reception, building brand affinity across all customer segments in the country. The company continues to make extensive progress on the marketing front by communicating key differentiators to consumers, entering into alliances and introducing various innovative products and services.

We recently launched our new brand campaign, Be Someone's We, rooted in the company's vision of being a partner to its customers in building a better today and a brighter tomorrow.

Humans have inherently been social beings. Since the evolution of mankind, humans have always been together to survive and thrive. However, today's world poses new types of challenges. Several studies indicate that people from all walks of life, especially the Gen Z and millennials, are struggling with challenges such as loneliness and social isolation impacting their overall well-being. This underscores the crucial need to establish genuine emotional connections in our ever-evolving digital world.

Bringing together the best of both worlds where physical and digital realms intertwine, our campaign is designed to deliver a powerful message of supporting one another through both good and challenging times even with the smallest of actions. It draws inspiration from everyday life scenarios to illustrate how a network can serve as a bridge performing human or social bonds promoting inclusivity and fostering a sense of togetherness.

Further, we continue to work on our offerings to make them more relevant to the changing customer needs and behavior and recently revamped our offering to make them more relevant to the customer.

India is a diverse country where cultures, languages and even last names often overlap. However, all telecom companies have traditionally offered one-size-fits-all kind of plans. We recognize basis urban consumer insight strengths report FY '23 that consumers need more choice and control on the benefits.

Accordingly, we have pioneered a new era of personalization, offering the freedom to select and customize benefits tailored to customers' unique preferences reflecting [ first of all ] India's diversity. This initiative enables our postpaid users the freedom to opt for exclusive lifestyle benefits across entertainment, food, travel and mobile security.

Our focus is to empower our customers by granting them the autonomy to tailor their mobile experience to their unique preferences. By integrating preferred OTT subscription, enhanced security measures and lifestyle privileges, we are delivering a holistic solution that resonates with the digital lifestyle of today's users.

Vi Mix is a testament to our dedication to driving value, power and convenience for our cherished customers, enabling them to flourish in the digital era.

We continue to focus on getting more customers on 4G unlimited plans for further ARPU improvement. We have seen ARPU growth from 9 consecutive quarters now. Q2 FY '24 ARPU stands at INR 142 compared to INR 139 in Q1 FY '24, a quarter-on-quarter growth of 2.1%. On a year-on-year basis, ARPU has increased by 8.7%.

You may recollect that at the end of last quarter, we had changed entry-level pricing where the validity of INR 99 plan was reduced from 28 days to 15 days in 4 of our circles. We have expanded this to 15 circles during the current quarter, and we continue to observe this space and will make further interventions as we go forward. However, given that many of these tariff interventions are taken during the month of August, the complete impact of these interventions is not reflected in this quarter.

That said, tariff rationalization on the higher usage plan and moving to a structure of paying more for using more remains critical to ensure the operators make reasonable returns on their massive network and spectrum investment.

Moving on to Business Services. Business Services or Enterprise segment is one of our strength areas, owing to our long-standing relationships with our enterprise customers as well as our ability to leverage from the experience of Vodafone Group in various global markets. We continue to make progress in line with our stated strategy of transformation from telco to techco for our enterprise offering. Our planned expansion of services beyond connectivity has seen good traction, and we continue to work with multiple partners to make our offerings more relevant to enterprise customers.

In this fast-evolving digital era, enterprise needs have broadened for various services and solutions, be it security, connectivity or cloud. To cater to these growing needs and as part of our ongoing portfolio expansion, we have partnered with Yotta Data Services to enhance our data center colocation and cloud services portfolio. This partnership will augment our extensive market presence with Yotta's strong position in high-quality data centers, cloud infrastructure and service delivery capabilities to aid the digital transformation journey of Indian enterprise. We are well positioned to offer end-to-end solutions, including colocation, managed hosting, public cloud, direct cloud connects, and security on our high-speed network across the country.

We continue to strengthen our focus on the MSME segment through our 360-degree program ReadyForNext2.0. The program continues to support MSMEs and digital adoption, transforming their businesses and helping them unlock the growth potential of their business.

The next strategic initiative is driving partnerships and digital revenue streams. We have set a strong digital road map for the company and have been executing the same through strategic partnerships in our continued journey of being the truly integrated digital services provider.

Over the last few quarters, we have significantly expanded our digital portfolio with the addition of music and video streaming, gaming and e-sports, job, education and digital advertising, and we continue to add various features to our offering.

We are building most of these offerings on our Vi App. Based on the transformation Vi App and Vi Movies and TV app saw last year, we have seen significant improvement in our customer ratings on Play Store, taking our app ratings to the best in industry. We continue to maintain the same trend.

On the consumer side, we launched Vi One, a converged proposition, offering mobility, fixed broadband and content under a single plan during the quarter. It is an industry-first proposition for the prepaid customer. It is a pilot launch with our subsidiary You Broadband in 12 cities across 3 circles. And now we are in the process of expanding it to other markets with other partners.

This brings to the consumer the unified proposition offering mobility, broadband and content as 1 package that is through a single plan, bringing convenience and value to the consumer. We would like to reiterate that we will continue to have a disproportionate focus to build a digital ecosystem with our partners, enabling a differentiated experience for Vi users which will help us to drive consumer stickiness as well as provide incremental monetization opportunities.

We have a strong pipeline for Q3. We are in the final stages of launching propositions for connected TV, cloud gaming and a few new categories, where we have signed some strategic partnerships to drive monetization. You will hear some news coming around that very soon.

Moving on to other highlights. The 4G subscriber base continued with the quarter and stood at 124.7 million as on September 30, 2023, versus 122.9 million in Q1 FY '24. An addition of 1.8 million 4G subscribers during the quarter is the highest 4G subscriber addition in last 8 quarters. With improving operations, we have seen lowest quarterly subscriber decline of 1.6 million since merger. The overall subscriber base stood at 219.8 million.

Revenue for the quarter stood at INR 107.2 billion, a quarter-on-quarter improvement of 0.6%, aided by better subscriber mix and 4G subscriber addition. ARPU improved to INR 142, up 2.1% quarter-on-quarter versus INR 139 in Q1 FY '24, primarily aided by change in entry-level plan, 2G to 4G upgrade and migration of subscribers to higher ARPU plan. The overall data volumes were up 2% quarter-on-quarter, and we continue to see the increase in the data usage per broadband customer which now stands at around 15.8 GB per month.

With that, I hand over to Murthy, who will share the financial highlights for the quarter.

G
G.V.A.S. Murthy
executive

Thank you, Akshaya. A warm welcome to each of you. As Akshay mentioned, revenues for the quarter stood at INR 107.2 billion, a quarter-on-quarter improvement of 0.6% aided by better subscriber mix and 4G subscriber additions. This is also the ninth consecutive quarter of growth in ARPU and 4G subscribers.

Quarterly EBITDA, excluding IndAS116 effects, improved from INR 20.2 billion in quarter 1 FY '24 to INR 20.6 billion in quarter 2. The reported EBITDA stood at INR 42.8 billion as compared to INR 41.6 billion in quarter 1 FY '24.

Further, the depreciation and amortization expenses and net finance costs for the quarter are INR 56.7 billion and INR 65.3 billion, respectively. Excluding the impact of IndAS116, the depreciation and amortization expenses and net finance costs for the quarter stood at INR 41.8 billion and INR 56.3 billion, respectively.

Following the Supreme Court ruling in October 2023, relating to a tax methodology on revenue share license fees, a tax provision for the past periods of INR 8.2 billion and related interest has been considered in this quarter. The CapEx spend for the quarter stood at INR 5.2 billion.

The total gross debt, excluding lease liabilities and including interest approved but not due as at 30th September stood at INR 2,127.8 billion, comprising of deferred spectrum payment obligations of INR 1,351.3 billion and AGR liability of INR 681.8 billion due to the government; debt from banks and financial institutions of INR 78.6 billion; and OCDs amounting to INR 16.1 billion. The net debt stood at INR 2,126.6 billion. The debt from banks and financial institutions has reduced by INR 72.2 billion during the last 1 year.

With this, I hand over the call to Zico and open the floor for questions.

Operator

[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities.

S
Sanjesh Jain
analyst

First is on the subscriber side. We had a lower decline this quarter and 4G addition has also improved over the last few quarters. And one of your peer who has reported a number on Friday also shown a higher subscriber addition. Is it a market-wide phenomena? And what is driving higher subscriber growth in the industry?

A
Akshaya Moondra
executive

Sanjesh, you were saying that the subscriber decline is minimal and the 4G additions is higher. I would say that it is mixture of a few things combined together. One is that, of course, the market intensity is higher and the overall customer acquisitions and maybe the additions of customers in the industry is also increasing.

As I have also probably said in the past is that the subscriber trends we see over the last few years is a mix of new subscribers coming in and multiple sums being consolidated. It is a little difficult to assess what is the impact of SIM consolidation. But I think probably that impact has reduced. Over a period of time, we should start seeing the real subscriber growth figures.

As far as VIL's performance is concerned, I think besides the normal performance improvement that we are focusing on in terms of getting better subscriber additions during the quarter and I think after a long time, while the figure is quite nominal, we've also seen a positive trend on the consumer side of the postpaid business. So I think that is also helping the -- but one of the main reasons for the trend in this quarter is that we had participated in a government scheme, and that has brought in a significant number of new subscribers, including 4G subscribers. So that is one of the things which has helped us in this quarter. But even without that, we would have seen an improving performance in this quarter over the previous quarter.

S
Sanjesh Jain
analyst

Fair enough. Fair enough. Second, on the cash management side, I think bank debt with the Q2, we said that a significant pressure on us will be behind. So now for second half, what is the bank payment left? And how do we plan to incrementally utilize the capital with the repayment pressure coming down? Will it significantly go towards increasing the CapEx?

A
Akshaya Moondra
executive

No. So I would put it this way that we continue to incur some minimal CapEx and so that will continue as to the necessary CapEx in terms of where we are operating today. However, our growth CapEx in terms of expanding our 4G coverage and also rolling out 5G, which will go side by side, will happen based on the new funding being tied up.

In the interim, since our cash generation will now be more than our debt servicing, we intend to use this for meeting our regular requirements, regular CapEx. And then, to some extent, this will go towards reducing the vendor outstanding. But any significant CapEx will happen after the new funding is tighter.

S
Sanjesh Jain
analyst

And on the funding side, is it fair to assume that we are closer to the -- probably in terms of procuring the funding now?

A
Akshaya Moondra
executive

So let me mention that and which I had also alluded to in the last call that we have made progress where the government conversion has happened and discussions are progressing, and we've again made progress since our last earnings call. I would expect that we should be able to conclude these discussions, which are relating to the equity investors in this quarter, which is also what I had indicated in the last quarter.

With the banks, I think the discussions have happened earlier. And currently, the focus is on tying up the equity investment basis which then the banks will process the request for bank funding and process their internal approval process.

S
Sanjesh Jain
analyst

Fair enough. One on the IoT side. The capability showcase is also coming from the technology transfer from Vodafone Plc? Because I think they are one of the largest as far as IoT goes.

A
Akshaya Moondra
executive

Yes, that is right. So I think we benefit a lot from what is happening at Vodafone Group and their leadership position in the IoT segment. And I would describe this as 2 different parts. One is the volume-driven IoT segment, which is generally going in metering and voz applications, where I think it is a -- largely, it doesn't require any significant support from Vodafone Group, which is more Indian business and that is supported by the India team.

But if you look at the automotive sector, Vodafone Group is kind of leader in that. So wherever value-added IoT applications are involved, we do benefit from them. And that is the reason why we also have the leadership position in the automotive sector in India today.

S
Sanjesh Jain
analyst

Got it. One last bookkeeping question, Akshay. This INR 822 crores of tax liability what we have recognized, how much of it is interest cost and how much of is it principal?

A
Akshaya Moondra
executive

I'll request Murthy to respond to that.

G
G.V.A.S. Murthy
executive

So Sanjesh, that INR 8.2 billion is actually the tax charge and interest is additional.

S
Sanjesh Jain
analyst

Okay. This is only the tax charge and interest will be over and above then?

G
G.V.A.S. Murthy
executive

That's right.

S
Sanjesh Jain
analyst

And we have more provision for it, Murthy?

G
G.V.A.S. Murthy
executive

We have provision for it.

S
Sanjesh Jain
analyst

But not through P&L or it is sitting in the interest cost?

G
G.V.A.S. Murthy
executive

It is sitting in the interest cost.

S
Sanjesh Jain
analyst

And what will be that number?

G
G.V.A.S. Murthy
executive

That we'll not be able to share with you separately because that's a mix of various things. So I mean, the interest figure is what was more relevant. Sorry, I stand corrected, the tax figure what was more relevant.

A
Akshaya Moondra
executive

And Sanjesh, if I may add a little bit. I think generally, this tax should give you -- anything which is provided right now will give you a benefit later on. Since in our position, we are not recognizing a deferred tax asset at this point of time, so that contract is not appearing. And I would say some of these provisions have also been taken on a bit of a conservative side. We believe that it could actually be lesser than this. But I think there are many interpretation issues and I would say this is taken more on a conservative side.

S
Sanjesh Jain
analyst

And Akshay, this should be paid in the cash immediately if it crystallized? Or can you adjust against the deferred tax you have?

A
Akshaya Moondra
executive

One is that we have large amount of tax refunds, which we still have to receive from the tax department. So I mean, again, this is multiple years and it's a complicated thing. But to my mind, most of it, if anything happens, which will take some time because just to be clear, these calculations, if somebody has to do, they date back to the year 2000 and you do a cumulative calculation from that time, so we've also done -- because this came recently, we've done a quick calculation.

I think these can convert to actual cash outflow once the tax department have done their working, they kind of come up with what their anticipation and calculation is. There will be some difference of opinion on the interpretation is also possible. So I think it will take some time, but most likely, and Murthy can add to that, whether this would largely offset the tax refunds rather than resulting in incremental cash outflow.

G
G.V.A.S. Murthy
executive

Yes, that's right. Sanjesh, the tax refunds are higher than this amount, but currently, we have still now the demand. So in such time there's a trigger either at an IPAT or an High Court pertain to that year because of other disallowances and then that will lead to the tax officer recomputing this. This will not lead to any outflow immediately.

Operator

Our next question is from the line of Kunal Vora from BNP Paribas.

K
Kunal Vora
analyst

Yes. First one, how is the launch of 5G by competition impacted you so far? And are any of the corporate customers demanding that you offer 5G? And would you say that like so far, the impact is not much or it's something which is becoming worrisome?

A
Akshaya Moondra
executive

So Kunal, I mean, as you can understand, this is something which we kind of track on a regular basis, and we do believe that we will need to have 5G, but I would say that until now, we have not seen any significant impact of 5G not being with us and being with competition.

And I think the reason for that, one is that, let's say, if you look at our trends of churn for 5G device owners and non-5G device owners, there's no significant difference, which would be relevant. Also, if we look at the postpaid subscribers, which then generally is seen as a kind of surrogate for the higher ARPU subscribers or people with more 5G devices, actually in that segment, in this quarter, we have for the -- after a long time, seen a growth in the net adds in the consumer segment.

So really speaking, firstly, both these are indicators that this is not impacting us so much. And I think the reasons for that are that while 5G is a good technology, whether the consumer sees the difference is 1 thing.

And second, I think as we have discussed that while today, people are not paying for 5G usage, as and when it comes to time for payment of 5G usage, currently, the experience on a small handset device is not that different, but your data consumption for watching the, let's say, YouTube video would be much higher. And so I think that is also one of the challenges, which ultimately will be there and those who understand it, they may find that.

And of course, as the networks get a little more ubiquitous, experience of people on 5G will improve. So I would say it will deliver a good experience over a period of time, but whether people are driven by the need for 5G, we've not seen any significant impact until now.

K
Kunal Vora
analyst

Okay. Second one is on the SG&A cost, it's down this quarter. Last year, this number had seen a sharp increase. Do you see the number stabilize or moderate going forward?

A
Akshaya Moondra
executive

So I would say that the SG&A costs generally on the customer acquisition part, which is the part of this cost, the cash cost would have gone up a little bit in this quarter. But if you recollect, last year, we had -- last quarter, we had made a change in the life of customers because of which the deferment being less of the impact on the P&L was higher.

So this quarter, there is no impact on the -- because of the change in life. So from a P&L charge, it is appearing better, and we've also taken some initiatives to reduce the cost on the SIM side. So just from a pure market activity, given that our gross adds are higher in this quarter, our overall market-based customer cost of acquisition has increased but that has been offset by other savings, largely the SIM cost savings and the deferment being higher in this quarter because last quarter, we have changed the life of the customer.

K
Kunal Vora
analyst

But do we see a change in competitive -- sorry, yes, go ahead, Murthy.

G
G.V.A.S. Murthy
executive

Also, there have been certain cost initiatives on the content side, which has led to certain savings, which we expect to continue.

K
Kunal Vora
analyst

Okay. And is there any change in competitive intensity in the market?

A
Akshaya Moondra
executive

I would say it is somewhat higher than what we saw in the last quarter. Particularly on the inventory side.

K
Kunal Vora
analyst

Okay. And you had announced the promoters would support Vodafone Idea to the extent of INR 2,000 crores. Is there any update on this? And you made a payment of INR 1,700 crores to government recently. Did you get any funding from promoters?

A
Akshaya Moondra
executive

No. So in the last quarter, we had gotten a letter from the promoters that they will support us to the extent of INR 2,000 crore. The last -- I mean, 'til date, they have not actually contributed anything. We had gotten some bank funding to tide over the short-term mismatch that we had in the last quarter. The promoter's commitment is there. They have said that they will support as and when required. And we expect that this promoter's contribution should also come alongside the tie-up with the external investors.

K
Kunal Vora
analyst

But is that subject to external funding coming in or even without that, the INR 2,000 crore will come?

A
Akshaya Moondra
executive

No. It is not subject to that, but the expectation is that both can happen together, but it is not subject to that. Most likely, this will conclude in this quarter. That's our expectation.

K
Kunal Vora
analyst

Yes. Okay. Okay. And any impact of JioBharat that you've seen so far?

A
Akshaya Moondra
executive

Actually, not very much. And I think the best indicator of that would be that, let's say, this was the quarter where we did most of our intervention of changing the entry-level pricing. And that would probably have been a factor because the JioBharat phone was targeted more towards the people who are on entry-level pricing or, let's say, who were [indiscernible] limited plan.

So if that was going to have any significant impact or any impact at all, I think it would have reflected in some impact on -- as we took the changes in the entry-level price. Since that has not happened, that is one very clear indicator from an external perspective, but let's say this is not a subject of discussion anymore because it's not had any impact, so to say.

K
Kunal Vora
analyst

Sure. And lastly, on the Supreme Court decision, would you be looking to contest it or do you think it does not really have any meaningful cash impact to like…

G
G.V.A.S. Murthy
executive

So we are evaluating that, and we'll take some time on this.

Operator

Our next question is from the line of Himanshu Shah from Dolat Capital.

H
Himanshu Shah
analyst

Sir, 1 question. We have went back to Supreme Court filing a curative petition with respect to the differences or errors in the AGR liability. So just want to understand what is the difference that we are envisaging? And why we are going back after almost a gap of 2.5 years since this amount was crystallized for the last Supreme Court judgment?

A
Akshaya Moondra
executive

Okay. So before I answer this question, let me just say that the matter is before the Supreme Court and so any response that I'm giving should be seen in light of the fact that this is -- I'm just trying to provide as much clarity and information on the subject. But ultimately, the final result will be what the court decides.

Having said that, if you remember that we have been at multiple times saying that there are errors in the demand and the Supreme Court judgment, which was given in 2020, had kind of mentioned that the demand which was captured in the affidavit filed by the DOT in the Court at that time where this information was stopped was kind of fixed, although DOT in their own filing the affidavit they had said these are provisional in nature.

Now post that, we had filed a review petition against the judgment of October '19, which was disposed off. And then we had filed another review petition post the judgment of 2020, this was filed in 2021. That review petition has not been disposed of. And since that was taking some time, we thought that at this point of time, it would be best to file a curative petition because it looks like the review petition one was rejected, in any case, we had to address that, and the other one was not progressing.

So one thought earlier was that let us -- both the review petition we disposed of, they were relating to the same matter and then file the curator, but since that was taking some time, we finally decided that we should file the curative petition.

In terms of the fact that there were errors in demand, which has been a matter of public knowledge, in fact, when the judgment was announced, DOT had asked us to do a self-assessment exercise, which was then kind of not proceeded with because that was the Court direction. We had also filed our figures of self-assessment and all.

So it is clear knowledge that there are some errors in those demands, and we have requested the Supreme Court to allow the DOT that if there are any error in these demands, they can be corrected because I don't think any government would like to recover demands which are not right.

The second prayer in the curative petition is also seeking waiver of penalty and interest thereon. And the rationale for this is since the -- 'til the time the last judicial announcement of this was given by the Tribunal, I think somewhere in 2015, the matter was largely divided in favor of the industry.

So really speaking, there was no fortunately to pay because the matter was decided in favor of the industry largely. And at that time, TDSAT had directed the DOT to issue fresh demand based on the TDSAT judgment at that time. However, since DOT had gone into appeal in Supreme Court, they had not raised any revised demands at that point of time. So basically, the contention of the service providers is that there should not be any penalty. Levied interest itself is -- the time value of money is being covered by that. And in this case, the interest itself was penal in nature.

So in summary, there are 2 prayers. One is allow and direct the DOT to make correction in the demands#, which they have provisionally raised earlier. And secondly, waiver off the penalty and interest on penalty thereof.

H
Himanshu Shah
analyst

Sure, sir. This is very, very helpful and very clear. Just a small follow-up on this. Are there any time lines to the -- will there be any kind of hearings on the curative petition or the Court will just review the filings and basis that they will unanimously decide on the curative petition whether to give any kind of revision or not, is one? And are there any time lines with respect to the curative petition outcome?

A
Akshaya Moondra
executive

So Himanshu, I'm not an expert on the subject. So don't hold me to what I'm saying, but my best understanding today is that first the Court has to decide whether they will acquit the curative petition or not, and that is the first decision to be taken. If it is decided that it will be taken, our sense is it would most likely be heard in the Court, but I'm not sure about that. In terms of time lines, I think we cannot comment on the time line; that is for the Court to decide.

H
Himanshu Shah
analyst

That is very, very helpful. Sir, can I have 1 more question?

A
Akshaya Moondra
executive

Sure. Sure. Why not?

H
Himanshu Shah
analyst

Sir, with respect to equity funding from external parties. Any color you can provide on the quantum of fund raise that we are looking for from external parties?

A
Akshaya Moondra
executive

I think, Himanshu, while we are working on specific figures, given the nature of these discussions and the sensitivity around them, I would avoid answering that question at this point of time.

Let me just put it this way if it is of any help, that we have a business plan with an investment plan and basically, the total equity plus bank funding that we are targeting is of a nature that we should be able to use that funding to make the investments and then improve the operations to a point where the balance sheet of the company is addressed to an extent that we then become self-sufficient, both in terms of cash generation from business being able to meet our requirements largely and if there is any gap to be able to raise new funding.

So all that I can say is that we are looking at an overall funding, which will meet our requirements where currently our cash generation is less 'til we get to a point of self-sufficiently based on our projection.

Operator

Our next question is from the line of Aliasgar Shakir from Motilal Oswal.

A
Aliasgar Shakir
analyst

First question was on your network coverage. So while I see your coverage both in terms of population coverage as well as consensus towns have improved or at least remained stable. But your unique sites have, to some extent, although very little, but kept reducing. Are these overlapping sites, therefore, that we are reducing because also your total broadband sites have reduced? Or how should we see going forward in terms of unique sites coverage expansion?

A
Akshaya Moondra
executive

So I would put it like this. I think the real figure to be seen in terms of network coverage is the network coverage in terms of population, which is improving. The point you are mentioning is mostly technical. What has happened is a lot of 4G is coming out of 2100 frequency band being deployed for 4G.

So let us say that if in a particular circle, we had deployed some 2100 for 4G already, but we're using 1 carrier of 2100 for 3G, because that was the need based on the 3G devices in that location or in that circle, that would be counted as 1 3G site in 2100 and one 4G site in 2100.

Now if that spectrum is refarmed to be used completely for 4G, then what you would say is that the number of 4G sites remains the same, but the number of 3G sites reduces. So what is happening is then the overall broadband sites would show a now reduction. So that part is not only technical, I think our capacity has been constantly increasing, our coverage is increasing though marginally and this reduction in broadband sites is more technical because of what I explained to you.

A
Aliasgar Shakir
analyst

Understood. This is very clear. And what about the unique towers? Although that has reduced by a very little amount, but that has also been reducing every quarter. So how would -- how should we read that?

A
Akshaya Moondra
executive

So let me answer that based on what I can tell you. And if there's anything that Murthy or [ Abhijit ] would like to add, they can do so. One of the reasons is that currently, we are not rolling out new physical sites except very few. And some of these sites which are getting closed down are also because of landlord issues or those kind of issues. So some closures keep happening for that reason. And I think it should be largely representative of that reason, unless Murthy wants to add something on that one.

G
G.V.A.S. Murthy
executive

So we look at these numbers on a quarterly basis, there's hardly any difference except for a few. And that, I think, is just normal.

A
Akshaya Moondra
executive

So that must be because of these -- either because there is some safety concern which government authorities consider sites to be closed or there is any landlord issues and the landlord says that we don't want to continue with that site. I think a minor reduction is happening probably on that count. And since our new rollout is minimal at this point of time, you may be seeing a decline. This closure of sites happens with everyone but because they rolled out more sites, so it may not be appearing so in the other cases.

A
Aliasgar Shakir
analyst

Got it. This is clear. Second question is on the subscriber churn and dilution. While you did emphasize that you may have not seen as much impact in the low subscriber category because of the competition, but more so because of the revision in the price plan that you have done.

Having said that, 4G subscriber base has seen improvement. So if you can just give us an overall perspective in terms of dilution. Where are we seeing this? Is it mainly only in the lower ARPU category and the premium segment, we are gaining customers? Or how should we look at this? If you can just share some light here?

A
Akshaya Moondra
executive

So let me put it this way that while in this quarter, we have had a price intervention, generally speaking, post December '21, there has not been any significant price intervention except this one where we changed the entry-level pricing. And if ARPU is improving in that scenario, it is based on some interventions and upgrade of subscribers. So it is very clear that on an overall basis, the subscribers are getting added to the higher ARPU category.

In terms of churn, you are right that we are seeing most of the churn at the lower ARPU category, and some of it might have also been accelerated by the change in entry-level price. So I think that the loss of subscribers is happening at the lower ARPU segment. So I don't know what is your question and have I answered it or you're wanting to understand something?

A
Aliasgar Shakir
analyst

Yes, yes, yes. So point is basically at the premium end, we have been able to more or less protect the customer base.

A
Akshaya Moondra
executive

That's right. And as I said, I mean, in this quarter, we have also seen -- after a fairly long period of time, we've seen an overall decline in the number of subs and also a net addition in the postpaid sub, that's a marginal number, but that has happened after a long period of time. And that clearly shows that in terms of attractiveness of our proposition as far as subscribers are concerned, we are moving in the right direction.

A
Aliasgar Shakir
analyst

Right. Got it. And just last bookkeeping question. So we have about INR 7,174 crore of debt, which is coming up due before 30th of September, right, 2024? So would you be able to share, is this entirely coming on the 30th or it is coming in tranches and what are those dates? And is this banded or are there any government obligations also part of this?

A
Akshaya Moondra
executive

Let me try and answer to the extent I can, and then Murthy can add on to that. So firstly, this is spread over a period of time. Secondly, this probably also includes some figures, which may be -- or I think this is excluding the covenant breach related reclassification. This also includes, I think, INR 1,600 crores of OCDs which were issued to ATC. And if those get converted, then this will not need to be serviced. So that is one part.

The rest is bank debt, which is spread over -- which is in the nature of amortizing debt. I think the one main figure would be that there is INR 2,000 crores of debt which we had taken in the quarter gone by, as we said, for taking care of the short-term funding gap and that will be repaid in next quarter, which is Q4 FY '24. So that is a larger debt servicing, otherwise, the remaining debt is more of an amortizing nature.

A
Aliasgar Shakir
analyst

Okay. Understood.

A
Akshaya Moondra
executive

Murthy, is it right that INR 7,174 crores includes the OCDs of ATC?

G
G.V.A.S. Murthy
executive

I think so, yes. That's right.

A
Aliasgar Shakir
analyst

Okay. So rest of the nearly INR 5,500 crore is coming spread across different periods of the year, right? And out of that INR 2,000 crore, as you mentioned, is 1 tranche which will come in 4Q?

A
Akshaya Moondra
executive

Yes. That is a single large tranche; the rest of it is mostly amortized.

Operator

Our next question is from the line of Santosh Sinha from Emkay Global.

S
Santosh Sinha
analyst

My question is regarding this INR 822 crores tax charge post Supreme Court judgment. So how judgment will actually impact the P&L going forward? That is my first question.

And the second is regarding any major cash payment that has to be done in 12 months? So these are my 2 questions.

G
G.V.A.S. Murthy
executive

So let me take this question. The first is that you see what the Supreme Court said is that the revenue share license fee, the tax allowability of that would be in line with the up-front license fee that was paid at the time of acquiring any license.

And since that's happened now, then what will happen is that if you take a 20-year period of a license, then in that case, you -- one would tend to get 1/20th in the first year, 1/19th plus the 1/20th in the next year. So it's basically a bottling waterfall that will happen. In the second 1/2 of the license period, one gets better tax liability as compared to the first 1/2 of the license period.

As far as we are concerned given that we are into losses, this is a onetime charge for the past years. Until such time that we get back to profitability, while the taxable computation would obviously be a little lower than your book loss, it does not result in any tax outflow. This would possibly affect organizations and entities, which have a taxable profit because to that extent, their -- the book profit because to the extent the tax profit would be higher. I answered your question?

S
Santosh Sinha
analyst

Yes, that was helpful.

G
G.V.A.S. Murthy
executive

Yes.

Operator

[Operator Instructions] Our next question is from the line of Sohan Joshi from ASC Consultants.

S
Sohan Joshi
analyst

Sir, just 1 confirmation. In one of the previous questions, you said that you'll -- since you have a good amount of cash now available because a sizable chunk of the debt has been paid and you will be clearing the outstanding dues of the vendors. So is it that before receiving those external funding and promoter's funding, we are targeting a certain higher percentage for clearing the vendor payments, so that the balance funding will then be entirely deployed for the growth CapEx only?

A
Akshaya Moondra
executive

So let me put it this way that whenever anybody is providing capital today, the basic driver of that capital is that it should be invested in growth CapEx because that is the main reason why the lack of investment is preventing us the ability to compete in the market, primarily the lack of 4G coverage.

So any new funding which is coming either from equity or from banks, the main objective of that funding is growth CapEx. However, given the fact that we have accumulated some vendor overdue and which has also happened somewhat because of the fact that we have continued to pay the bank debt on schedule on a regular basis, we are in discussion with our funding providers that some part of that is earmarked to clear the part of the vendor overdue and the rest will be cleared over a period of time out of the internal cash generation.

S
Sohan Joshi
analyst

Okay. That was helpful, sir. Sir, and the second question, we have a significant stake in one of the vendor's entity. So up to last year, there were plans that we might plan to sell up some stake in Indus. Is it that we might go ahead next year to sell out some of the stake in Indus? Or will it continue the current capital allocation only?

A
Akshaya Moondra
executive

No, no. So I think Vodafone Idea does not have any stake in Indus. That stake in Indus is led by Vodafone Group.

S
Sohan Joshi
analyst

Yes, yes, yes. Vodafone plc group.

A
Akshaya Moondra
executive

So I cannot comment on behalf of Vodafone plc. That is a question that can only be answered by them.

Operator

Thank you. Ladies and gentlemen, that was the last question of our question-and-answer session. I now hand the conference over to Mr. Akshaya Moondra for closing comments.

A
Akshaya Moondra
executive

Thank you, Zico. With improving operations, we saw the lowest quarterly decline in subscribers post-merger. We have reported 9 quarters of sequential growth in ARPU and 4G subscribers. We remain focused on providing competitive data and voice experience at locations we have where we are present and are building a differentiated digital experience, adding several digital offerings in the recent quarters.

Our share in cross-customer addition continues to remain higher than our customer market share for the last several quarters, clearly reflecting our ability to compete in the market once the investments are in place.

We continue to engage -- remain engaged with our lenders for further debt fundraising as well as with other parties for equity or equity-linked fundraising to make required investments for network expansion and 5G rollout to compete effectively.

We have been improving our performance with limited investments, and we are very confident that with the investments coming on stream, we will be able to make more meaningful improvements in our overall performance.

Thank you all for joining us on this call. Have a very good evening. Thank you.

Operator

Thank you. On behalf of Vodafone Idea Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.