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Subscriber loss ebbs; awaiting capital raise

* Vodafone Idea (VIL) posted 3% QoQ EBITDA growth (pre Ind AS-116), aided by slight moderation in subscriber churn and flat ARPU along with lower network cost in 4QFY23. Capex remained low as VIL awaits capital raise.

* Subscriber loss continued; however, VIL has taken some price increase in the minimum recharge category in select circles to drive profitability. After the Government’s equity conversion, there has been a progress towards fund raise as investors seek clarity. However, with INR84b of debt repayment scheduled in FY24E against an EBITDA of INR89b (pre IND-AS 116), the liquidity situation remains bleak. We reiterate our Neutral rating

EBITDA up 3% QoQ (Pre IND-AS 116) on lower cost

* VIL’s revenue declined 1% QoQ to INR105b (in line) due to a 1% drop in the subscriber base and flat ARPU. The subscriber base continued to decline, down 3m to 226min 4QFY23. Bharti/RJio also saw flat ARPU of INR193/INR179 but posted subscriber additions of 3m/6m for the quarter.

* Reported EBITDA grew 1% QoQ to INR42b (in line), led by lower network expenses (down 180bp QoQ) and lower customer acquisition costs (down 20bp QoQ) partially offset by an increase in roaming and access charges (up 110bp QoQ) in 4QFY23.

* Pre IND-AS 116 EBITDA improved 3% QoQ to INR20.7b (in line).

* Reported EBITDA margin improved 60bp to 40% and pre IND-AS 116 EBITDA margin expanded 80bp QoQ to 19.7% during the quarter.

* Net loss reduced to INR64b in 4QFY23 v/s INR80b loss in 3QFY23 (9% beat).

* VIL’s FY23 revenue/EBITDA increased 10%/5% YoY to INR422b/INR168b, while its net loss widened to INR293b from INR282b loss in FY22.

* Capex decreased QoQ to INR5.6b v/s INR7.5b in 3QFY23. For Bharti/RJio, annual network capex stood at INR280b/INR400b, significantly above VIL, despite having higher capacities.

* FCF post-interest and LL increased 66% YoY to INR32b in FY23 (much lower than annual capex of Bharti/RJio). FCF increase was driven by 5% YoY EBITDA growth and a decline in interest payments, which could be due to a drop in market debt. 

Highlights from the management commentary

* VIL has taken price action in the minimum recharge category in a few circles like Mumbai, reducing validity for INR99 plan to 15 days from 28 days.

* It reiterated the need for tariff increase. However, VIL indicated that it is not in a position to take the lead and will await peers’ decisions to drive any tariff hikes.

* VIL reduced customer acquisition cost, which was INR12-14b for the industry, by rationalizing channel and customers with high churn. However, it has not seen any impact on churn due to peer’s 5G expansion.

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