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Big loss continues

*  IDEA saw a healthy 7% QoQ growth in adjusted EBITDA (on a pre-Ind AS 116 basis) to INR21b on an ARPU growth of 3%. But declining gross/active subscriber continued at an accelerated pace, with net debt ballooning to INR1.98t

*  The subscriber churn continues, despite the relief package of FY22. Its annualized EBITDA of INR84b in 1QFY23 may not be sufficient to meet: a) its INR87b in debt repayments, including the 5G installment of INR17b, b) meet its intensive capex needs, and c) compete fiercely to retain market share. We maintain our Neutral rating.

ARPU improvement drives EBITDA, but subscriber churn continues

* Revenue grew 2% QoQ to INR104b (1% beat) aided by a 4% ARPU benefit flowing in from the recent tariff hike, but the same was partly offset by a loss of 3m subscribers (down 1% QoQ)

* Adjusted EBITDA (on a pre Ind AS 116 basis) grew 7% QoQ to INR21b (inline) after adjusting for a one-off of INR1.5b in 4QFY22. The incremental EBITDA margin was healthy at 82%

* The net loss widened further to INR73b v/s INR66b in 4QFY22 (10% miss) due to an increase in finance costs.

* IDEA’s overall/active subscriber loss continued unabated at 3.4m/7.1m in 1QFY23, taking its total count to 240.4m/218.6m.

* Capex spend fell QoQ to INR8.4b v/s INR12.1b in 4QFY22. BHARTI/RJio’s has spent over INR300b/INR400b on annual network capex

* Net debt rose INR20b QoQ to INR1.98t, out of which the government obligation is INR1.84b, while INR152b is non-government debt. Total debt payable by Jun’23 is INR86.5b, including INR69.5b in debt repayment and INR17b in 5G installments. A further INR52b is classified as current from non-current maturities for failing to meet certain covenant clauses.

Highlights from the management commentary

* The management expects a tariff hike by the end of CY22, which will result in a rise in ARPU

* It expects cash EBITDA to improve on the back of a reduction in SUC charges (3% of AGR) and lower tower rent.

* The NPV of interest on moratorium amounts to INR161.3b towards AGR and deferred spectrum liability will result in an equity dilution

* The acquired spectrum in the 3300MHz and 26GHz bands is sufficient to deploy 5G in India. The 5G rollout will be dependent on various parameters

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