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Vodafone Idea: Immediate fund raise key to stay competitive, ICICI Securities

VIL reported Q2FY22 results on expected lines with improved ARPU and margins.

  • Reported revenues were up 2.8% QoQ to | 9,406 crore. ARPU grew ~5% QoQ to | 109, as the company had increased the entry level prepaid pricing plan from | 49 to | 79, in a phased manner, as well as increased the tariffs in some postpaid plans. The subscriber base decline was a controlled at ~2.4 million (mn) to 253 mn, with churn rate reducing to 2.9% (vs. 3.4% in Q1). The 4G sub base saw addition of 3.3 mn QoQ to 116.2 mn. The post-paid sub base at 20 mn, however, was down by 0.2 mn QoQ
  • Reported EBITDA margins was up 56 bps QoQ to 41.1% with margin expansion aided by ARPU growth
  • The reported loss was at | 7132 crore

Key triggers for future price performance

  • Major tariff hike or floor tariff implementation
  • Substantial fundraise to meet debt repayments and capital spends

Key performance highlight and outlook
Churn rate eases a bit; cash crunch remains…

The subscriber base declined by 2.4 mn to 253 mn, with the churn rate reducing to 2.9% (vs. 3.4% in Q1). The 4G sub base saw addition of 3.3 mn QoQ to 116.2 mn. The post-paid sub base at 20 mn, however, was down by 0.2 mn QoQ. Similarly, capex at | 1300 crore (vs. ~| 940 crore in Q1) was underwhelming given the balance sheet stress. The net debt at | 1.95 lakh crore was up, largely on inclusion of accrued interest. The company has debt renewals coming up. The network spends also lag vis-à-vis peers. Thus, fund raising will be key to stay competitive.

ARPU aids EBITDA growth; fund raise continues to be delayed
Reported EBITDA margins were up 56 bps QoQ to 41.1% with margin expansion aided by ARPU growth. EBITDA excluding Ind-AS 116 impact was | 1560 crore, compared to | 1380 crore in Q1FY22. There was a one-off of | 1.5 crore in other expenses in the quarter. On the ex-Ind-AS front, adjusted EBITDA was at | 1410 crore. Of the | 4,000 crore of further annualised cost savings over next 18 months, ~80% was realised by the company by the end of this quarter (vs. 70% in Q1). The company indicated that it is in active discussions with potential investors and expects fund raise by FY22 end. Thus, on the tariff correction front, it has indicated that tariff hike will be key. We note that while the company intends to raise tariffs, it would be a function of all players’ agreement (including Jio).

VIL remains the weakest private telco. The need for capitalisation is urgent mainly due to its upcoming debt repayment requirement, lagging spends on network and continued relative market share loss. We highlight that recent government relief measures would ensure survival of VIL.

Financial summary

CT Bureau

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