Vodafone Q4 Result

Vodafone reported Q4 results, largely in line with muted expectation. ARPU fell 8% q-o-q. Margins increased in 2H vs 1H. Management though indicated that there are some provision write-backs in Q4 which aided the same. The key highlight though in our view was the 4% dip in postpaid subs in the quarter. Postpaid contribute 20%+ of the revenues and with Jio now actively targeting this group there could be acceleration in the same.

Muted quarter: Vodafone reported a muted quarter with revenues down 4% q-o-q led by customer revenues down 7% q-o-q. Subscriber addition was 10.2 mn in the quarter. Vodafone margins saw a small uptick in 2H18. Margins stood at 22.3% vs 21.1%. Management indicated that this was led by cost control and also provision release in Q4. This is similar to what Idea reported in its Q4 results. ARPU declined 8% q-o-q. The decline was led by pre-paid ARPU which declined 8%. Postpaid ARPU dip was slightly lower at 5%. The key negative, in our view, was Vodafone losing 500K+ postpaid subs q-o-q in Q4FY18 (4% decline). Over FY18 it has lost c5% of its postpaid subs. This is important as postpaid ARPUs are 5x of prepaid ARPUs.

Postpaid the key challenge: The key challenge for Idea/Voda going forward will be retaining its postpaid and high ARPU data subscribers. Postpaid contribute 20%+ of the revenue base. With Jio recently launching postpaid offer at 50% discount to incumbents we expect sharp fall in these ARPUs. Nearly 40% of the postpaid subscribers are corporates and these will be a key target area. Any 10% cut in postpaid prices will lead to c2% cut in overall ARPU. Any 10% cut in postpaid prices will lead to 12/6% Ebitda hits for Idea and Bharti, respectively.

Remain cautious on sector

We remain cautious on the sector as we expect competitive intensity to remain high as operators vie for market share. Jio’s recent move confirms our concerns. We expect ARPU to remain under pressure and cost pressures to also increase. Recovery will also be gradual from mid-FY20. ARPU increases will require investment in both capacity and content in our view. We remain cautious on both Bharti and Idea. – Financial Express

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