Vodafone Idea: Liabilities coming up for payment soon, ICICI Securities

Vodafone Idea’s Q4FY21 cash EBITDA at Rs22bn benefited from one-off gains in network cost of Rs4.5bn; adjusted cash EBITDA came in below our estimate despite cost-saving efforts. Though VIL has seen marginal improvement in 4G subscriber (sub) addition and lower total subs loss, it is too little to make any difference, in our view. We see liabilities coming up for payment soon and VIL  may have cashflow mismatch. The efforts to raise funds has also not yielded any outcome yet. Relief from government on spectrum payment, and reduction in AGR liability on SC accepting reconciliation are other hopes. We have cut our EBITDA estimates by 11%/14% for FY22E/FY23E, but maintained our target price of Rs5 as we increase the EBITDA multiple to 13.3x (from 10.5x earlier).

• Key variables showed improving prints: VIL had sub loss of just 2mn – same as in the previous quarter. Company has added 4.2mn 4G subs (it has been improving in past few quarters). Gross sub addition has improved to 22mn (vs5mn in past 12 months), which is helping reduce sub loss. Data usage grew 8.2% QoQ to 4,489bn MB as network quality improved.
• Adjusted for IUC impact, revenues down 2.2% QoQ to Rs96bn. VIL’s mobile revenues were stable QoQ if adjusted for 2 days less during the quarter, and IUC impact. This was despite loss of 2mn subs due to rise in 4G subs, which should have helped organic ARPU growth. On reported basis, ARPU was down 11.6% QoQ to Rs107. Postpaid sub base has grown marginally by 0.1mn to 20.9mn, which should have also helped. Minutes continued to decline (down 3.3% QoQ and 14% YoY), to 529bn.
• Cash EBITDA (adjusted for Ind-AS 116) at Rs22bn. EBITDA at Rs44bn was up 2.9% QoQ due to one-off gains in cost (network and IT) of Rs4.5bn; adjusted EBITDA dipped 7.6% QoQ despite strong efficiency in cost savings. Adjusted for one-offs, network cost was down 1.1% QoQ, employee cost fell 13% QoQ while SG&A cost rose 18% QoQ due to higher selling and marketing expenses. Adjusted for Ind-AS 116, EBITDA was Rs22bn (up 3% QoQ and down 18% QoQ if we adjust for one-off gains). EBITDA should have been impacted by nil IUC revenue as VIL was net IUC receiver earlier.
• Total debt including AGR dues and accrued interest was Rs1,867bn. The figure includes deferred spectrum liability of Rs963bn, AGR liability of Rs610bn, and bank borrowing of Rs231bn. The liabilities due for payment in next 12 months are: 1) annual payment (includes interest) towards AGR liability of Rs80bn in Mar’22 (this is assuming nil payment for Mar’21 dues, which is yet to be clarified); 2) bank guarantee of Rs70bn coming up for renewal (the company has to give additional bank guarantee of Rs10bn); 3) annual payment towards spectrum due in Apr’22 – of Rs82bn. Company has requested DOT for deferment of some of the payments due to cashflow crunch. We see payment of liabilities coming soon, while fund availability remains a challenge.

Other highlights

• Sub-base shrunk 0.7% QoQ (net loss: 2mn); the decline has been stable at Q3FY21 levels compared to Bharti Airtel’s sub addition of 13.4mn in Q4FY21. VIL’s ARPU dipped to Rs107, down 11.6% QoQ, on account of nil revenue from IUC, which impacted ARPU by 9.6%. Postpaid subs rose 0.1mn (up 0.5% QoQ) to 20.9mn.
• 4G sub-base stood at 113.9mn, up 4.2mn. Mobile broadband subs rose 2.8mn to 123.6mn in Q4FY21, which also included 3G subs. Total data subs were up 2.3mn to 140mn. Data sub base across categories has shown recovery but is much below peers, which means market share loss continues.
• Mobile minutes dipped 3.3% QoQ to 529bn, implying a net loss of 18bn minutes QoQ. Minutes per user dipped 2.4% QoQ at 657.
• Data usage rose 8.2% QoQ to 4,856bn-MB on 6.3% QoQ growth in data usage per mobile broadband sub. Mobile broadband subs used 13GB data per month.
• Churn rate slightly increased to 3% in Q4FY21. Company’s gross subscriber addition was at 22.3mn in Q4FY21 (vs 9mn in Q3FY21).
• Capex for the quarter stood at Rs15.4bn (16% of total revenues); it was Rs41.5bn for FY21 (10% of revenues).
• Net debt stood at Rs1,739bn, up Rs580bn, on inclusion of AGR liability. Cash balance stood at Rs22bn.

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