Vodafone Idea Ltd - With AGR case behind, can VIL bounce back? - ICICI Securities

Vodafone Idea's (VIL) Q2FY21 adjusted cash EBITDA at Rs16bn was broadly in line with our estimates. However, it was no show for VIL in Q2FY21 with subs decline of 8mn, 4G net add at a meagre 1.5mn, and drop in minutes and data usage. With the AGR case behind, VIL will need to bounce back stronger, with limited resources, to remain a going concern. Capex for VIL is contingent on fund raising and any delay may hurt it further. Company requires tariff hike sooner rather than later to boost operational cashflow, and we see it likely to initiate tariff hikes, which should be followed by competition (same as Dec'19). We have cut our EBITDA estimates by 14% / 11% for FY21E and FY22E on weak Q2 numbers. We roll-over our valuations to FY23E and cut EBITDA multiple to 10.5x (from 11.5x); accordingly, our fair value dips to Rs5 (from Rs6). Maintain SELL.

- With AGR case behind, the key variables to watch: Management bandwidth should have gone into the AGR case, which is now behind. Company's public statement of likely shutdown should have hurt channel partners, hence slippage in execution is understandable. But, VIL would need to show strong execution hereon, with limited resources, if it has to survive. It need to expand gross subs add (14mn in Q2FY21 vs run rate of 22mn-24mn) and strong 4G net adds. We will also like to see rise in customer engagement (mins have declined since the Voda-Idea merger) and data usage growth.

- Revenues up 1.2% QoQ to Rs108bn (vs Bharti's mobile revenues at +7.4%). Revenues for VIL were impacted by 8mn subs loss to 272mn and lower 4G net add of just 1.5mn to 106mn. Revenue growth is particularly disappointing considering it declined sharply in the previous quarter by 9.3% on non-availability of recharges, which has only partly come back. Further, the company's ARPU rose 4.4% QoQ to Rs119 on loss of low-ARPU subs. VIL also lost 0.3mn postpaid subs to 21.3mn. Customer engagement was unimpressive with minute decline of 4.1% QoQ to 555bn, and data usage dip of 4% QoQ to 4,340-bn MB.

- Cash EBITDA (adjusted for Ind-AS 116) at Rs19bn. EBITDA at Rs41bn came 9% higher than our estimate due to a one-off benefit of Rs3bn. Adjusted for Ind-AS 116 and the one-off, EBITDA was Rs16.3bn (in-line) vs Rs15.3bn in Q1FY21. Selling & marketing costs increased 15.9% QoQ probably on re-branding. VIL has already achieved Rs10bn of annualised savings out of the guided Rs40bn additional synergy benefits. Finance cost rose 23.6% QoQ to Rs47bn on inclusion of interest on AGR dues. Net loss stood at Rs72bn.

- Net debt including AGR dues at Rs1,721bn. VIL's capex is still low at Rs10bn likely due to cash crunch. Net debt has dipped by Rs10bn to Rs1,145bn on lower capex and moratorium on interest payment. Including AGR dues of Rs576bn, total net debt is Rs1,721bn, which is unsustainable. Company has taken Board approval for Rs250bn fund raising with a mix of debt and equity. We believe equity infusion is critical as it would allow the company to invest in network.

Shares of Vodafone Idea Ltd was last trading in BSE at Rs.8.75 as compared to the previous close of Rs. 8.38. The total number of shares traded during the day was 93918936 in over 146656 trades.

The stock hit an intraday high of Rs. 8.92 and intraday low of 8. The net turnover during the day was Rs. 808968853.

Source : Equity Bulls

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