Vodafone Idea’s (VIL) Q2FY23 underlying mobile revenue grew 0.5% QoQ (based on our calculations) despite 6mn decline in subs. The growth was partly helped by an additional day during the quarter. Enterprise segment grew at a strong rate of >15% QoQ driven by higher ILD business, in our view. 4G subs addition was 1.6mn. However, VIL is not able to capture all its data subs in the migration from 2G to 4G as the number of data subs declined. Company has been facing capital constraints, but is in a much better position than telcos that went defunct in the not-so-distant past in India. VIL has bought enough 5G spectrum and requires capital only for rolling out the network. Thus aggressive deployment of 5G is dependent on the company’s ability to raise more capital, while peers are gearing up for faster 5G deployment. VIL’s debt has increased to Rs2,201bn, but non-government dues were only Rs150bn. We have kept VIL estimates, TP and recommendation UNDER REVIEW.
- Good ARPU growth partly on 2G subs decline. VIL lost 6mn subs (net) during Q2FY23 bringing the total to 234mn; the decline continues. However, postpaid subs rose by 0.7mn to 20.9mn driven by mobile users and M2M/IOT. Gross sub addition increased to 24.9mn (vs 22.2mn in Q1FY23) though higher churn rate led to net sub loss. 4G sub adds is still a struggle and stood at 1.6mn taking the total to 131mn. Minutes fell 4.9% QoQ (10.8% YoY) to 428bn. Data usage rose 5.4% QoQ (3.6% YoY) to 5,718bn-MB. ARPU was at Rs131, up 2.3% QoQ / 20.2% YoY aided by an additional day during the quarter and partly supported by 2G subs decline (low ARPU) and higher 4G subs.
- Revenue grew 2% QoQ / 12.8% YoY to Rs106bn. Our working shows VIL’s mobile revenue was up 0.5% QoQ to Rs93bn driven largely by ARPU growth. Enterprise business has grown faster at >15% QoQ to Rs13bn, which we believe was partly driven by higher ILD revenue (reflected in higher access charges at Rs9.8bn, up 10.7% QoQ). VIL’s mobile revenue has grown slower than Bharti’s (4% QoQ) and RJio’s (3%), which implies VIL continues to lose revenue market share.
- Cash EBITDA (adjusted for Ind-AS 116) at Rs21bn. EBITDA at Rs41bn was down 5.3% QoQ (+6% YoY). This was due to higher costs: 1) network cost rose 15.9% QoQ to Rs27bn due to a shift in rental from lease financing to charging to P&L, and higher diesel prices; and 2) SG&A spend rose 5.7% QoQ to Rs13bn on higher gross subs addition and more marketing expenses; however, lower SUC (part of licence fees and SUC) helped with an 8.3% QoQ dip to Rs10bn. Depreciation reduced by 2.6% QoQ to Rs56.6bn while interest cost was up 3.9% QoQ to Rs61bn. Net loss during Q2FY23 stood at Rs76bn. Capex for the quarter was Rs12bn (11.4% of revenue).
- Net debt piles up to Rs2,201bn. This includes deferred spectrum liability of Rs1,367bn, up by Rs200bn due to 5G spectrum purchase cost of Rs188bn and the rest is from interest accrued but not paid, AGR liability of Rs686bn and bank borrowing of Rs151bn. VIL has agreed to issue optionally convertible debentures worth Rs16bn to ATC in lieu of payment towards tower usage. Government of India is yet to convert interest on moratorium EMIs worth Rs160bn into equity.