Vodafone Idea – Q3FY23 First Cut, Distress continues! ICICI Direct

Vodafone Idea’s (VIL) Q3FY23 performance was weak with higher customer churn and higher losses.

Q3FY23 Earnings Summary

• Reported revenues were up flat QoQ to | 10,621 crores. ARPU grew by ~3% QoQ to | 135, in line with expectations. The subscriber base decline, however, at ~5.8 million (vs. 6 mn decline in Q2), remained elevated with the churn rate rising to 4.4% vs. 4.3% in Q2. 4G sub base saw the addition of merely 1 mn QoQ to 121.6 million. The company lost 0.5 mn post-paid subscribers during the quarter
• Reported EBITDA margins were up 76 bps QoQ to 39.4%, albeit below expectation of 40.5%, with QoQ margins improvement led by lower spectrum usage charge
• The reported loss stood at | 7990 crores (our estimate: | 7557 crore loss) owing to lower EBITDA and higher interest costs
• The net debt at | 2.23 lakh crore was up by ~|2410 crore, owing to cash burn. Capex spending was | 750 crore vs. | 1210 crore in Q2, and underwhelming vis-à-vis peers, given the balance sheet stress.

View: VIL remains the weakest private telco. The need for capitalization is urgent mainly due to its upcoming debt repayment requirement (~| 9600 crore by September 2023), lagging spending on the network, and continued relative market share loss. The delay in the 5G launch could further lead to elevated churn in high ARPU and postpaid customers. We highlight that recent government relief measures (including interest in AGR dues moratorium conversion) would ensure the survival of VIL but the future growth outlook remains gloomy. ICICI Direct Research