Vodafone Idea Ltd - Performance improving, but not enough - ICICI Securities

Vodafone Idea's (VIL) Q3FY21 cash EBITDA at Rs21bn benefited from amortisation of subscriber acquisition cost (SAC, Rs3.3bn) over life-time of subs which was earlier expensed in P&L. VIL is showing some improving trend with lower subs loss, better gross adds, higher 4G net add and rise in data usage, but it is still not enough. With 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. It requires tariff hike soon to boost operational cashflow. VIL may initiate tariff hikes, which should be followed by competition (same as Dec'19), we believe. We maintain our estimates and target price of Rs5. Maintain SELL.

- Key variables showing improving prints: VIL had significantly decelerated subs loss to just 2mn (vs 9.8mn subs loss in past four quarters) which is much better, but it is still losing. It may raise tariffs as it starts adding subs base, which means we are nearing tariff hike; and it may again be a steep increase considering rising required run-rate for cashflow breakeven. VIL has added 3.6mn 4G subs (vs 0.6mn in past three quarters) and more so in unlimited packs, which is helping drive organic ARPU increase. Gross subs addition has improved to 16.9mn (vs 12.4mn in past three quarters) which is helping drive higher subs growth. Data usage grew 3.4% QoQ to 4,489bn MB.

- Revenues up 1% QoQ to Rs109bn. VIL mobile revenue was stable QoQ and was impacted from subs loss; total revenue growth was driven by better performance in enterprise segment. Mobile revenue was helped by ARPU rise of 1.7% QoQ to Rs121 on higher 4G net add. It lost 0.4mn post-paid subs to 20.8mn which is offsetting some ARPU benefits. Minute continues to decline, down 1.5% QoQ to 547bn, while access charges rose 4.6% QoQ implying lower EBITDA contribution from IUC.

- Cash EBITDA (adjusted for Ind-AS 116) at Rs21bn. EBITDA at Rs43bn was up 3.2% QoQ despite Rs3bn one-off gain in base on account of change in subscriber acquisition cost which is now amortised over life-time of sub which has lowered the cost by Rs3.3bn. Adjusted for Ind-AS 116, EBITDA was Rs21bn (up 9.5% QoQ on comparable basis). VIL has already achieved Rs20bn of annualised savings out of the guided Rs40bn additional synergy benefits. Cost efficiency has drove 32% QoQ dip in admin cost. It had exceptional gain from stake sale in Indus Towers. Net loss stood at Rs45bn.

- Net debt including AGR dues at Rs1,747bn. VIL's capex is still low at Rs10bn likely due to cash crunch. Net debt rose by Rs26bn, despite cashflow from Indus stake sale at Rs37.6bn, to Rs1,171bn on advance paid to Indus Tower of Rs24bn, and other working capital changes. And including AGR dues of Rs576bn, total net debt is Rs1,747bn, which is unsustainable. It is yet to announce fund infusion and equity infusion is critical as it will allow the company to invest in network and help bounce back.

Shares of Vodafone Idea Ltd was last trading in BSE at Rs.12.08 as compared to the previous close of Rs. 12.54. The total number of shares traded during the day was 68242129 in over 92448 trades.

The stock hit an intraday high of Rs. 12.9 and intraday low of 11.92. The net turnover during the day was Rs. 838161404.

Source : Equity Bulls

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