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Liquidity concerns remain…

Vodafone Idea’s (VIL) Q4FY21 reported revenues were down 11.8% QoQ to | 9,607.6 crore, out of which 9.6% decline was due to removal of IUC. On a reported basis, ARPU fell ~11.6% QoQ to | 107. Reported EBITDA margins were up 660 bps QoQ to 45.9%, aided by one-off related to IT and network costs to the tune of | 450 crore. Adjusted for the same, margins were at 41.2%. The EBITDA margin (excluding Ind-AS 116 impact) was 22.6%, up 320 bps QoQ. Reported loss was at | 7022.6 crore, impacted by weak operating performance and exceptional charge of | 974 crore, out of which | 724 crore was due to impairment taken on the new integrated brand ‘V!’.

Overall churn rate increases; cash crunch remains…

The subscriber base declined by ~2 million (mn) to 267.8 mn (similar to Q3), with churn rate increasing to 3% (vs. 2.3% in Q3FY21). The 4G sub base saw an improved addition of ~4.2 mn QoQ to 113.9 mn, albeit still lower than peers. Similarly, capex at | 1540 crore (vs. ~| 970 crore in Q3) was higher QoQ, yet underwhelming given the balance sheet stress. Net debt at | 1.8 lakh crore was up from | 1.15 lakh crore, on inclusion of | 60,960 crore AGR liability. We highlight that payment commitments of ~| 16000 crore for annual spectrum payment and ~| 8400 crore for AGR dues are coming up in March, April, 2022. Furthermore, it also needs to renew bank guarantees of ~| 7000 crore (and need to give some additional guarantee) in coming months. It has also written to the government for further moratorium.

EBITDA aided by one-offs; fund raise continues to be delayed

The reported EBITDA was aided by one-off provision write-back related to IT and network costs to the tune of | 450 crore. Of the | 4,000 crore of further annualised cost savings over the next 18 months, ~65% was realised by the company by the end of this quarter (vs. 50% in Q3). The company indicated that it is in active discussions with potential investors and expects the fund raise soon, with industry stress delaying the process. Similarly, on the tariff correction front, without indicating exact timeline, it has indicated that tariff hike and/or floor tariff implementation will be key. We note that while the company intends to raise tariffs, it would be a function of all players’ agreement (including Jio).

Valuation & Outlook

VIL remains the weakest private telco. AGR dues payment extension was only a short-term breather and its survival hinges on quick capital infusion and tariff hike/floor tariff implementation. The need for capitalisation is urgent mainly due to its upcoming payment commitments, lagging spends on network and continued relative market share loss. We maintain SELL rating with a DCF based target price of | 5/share (vs. | 6/share, earlier). We will monitor triggers like fund raise and tariff hike, before changing stance.

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