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Vi continues to struggle with churn and leverage

Vodafone Idea’s (VIL) Q2FY23 performance was weak with higher customer churn, steeper than expected decline in margins and higher losses.

Q2FY23 Earnings Summary

  • Reported revenues were up 2% QoQ to | 10,615 crore. ARPU grew by ~2% QoQ to | 131, in line with expectations, driven higher number of days during the quarter. The subscriber base decline, however, at ~6 million (vs. 3.4 mn decline in Q1), increased with churn rate rising to 4.3% vs. 3.5% in Q1. 4G sub base saw addition of merely 1.5 mn QoQ to 120.6 million
  • Reported EBITDA margins was down 298 bps QoQ to 38.6%, below expectation of 41.4%, owing to higher than expected network opex (which was up 16% QoQ and higher marketing expenses
  • The reported loss stood at | 7596 crore (our estimate: | 7409 crore loss) owing to lower EBITDA
  • The net debt at | 2.2 lakh crore was up by ~|21900 crore, owing to recent spectrum purchase of | 18800 crore and cash burn. Capex spend was | 1210 crore vs. | 840 crore in Q1, and underwhelming vis-à-vis peers, given the balance sheet stress.

Outlook. VIL remains the weakest private telco. The need for capitalisation is urgent mainly due to its upcoming debt repayment requirement (~| 5000 crore in FY23), lagging spends on network and continued relative market share loss. The delay in 5G launch could further lead to churn in high ARPU and postpaid customer. We highlight that recent government relief measures would ensure survival of VIL but future growth outlook remains uncertain.

Impact. Negative

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ICICI Securities

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