Steady ARPU growth partly diluted by subscriber loss
* While ARPU showed healthy 11% QoQ growth led by the price hike taken in Dec’19, revenue grew a mere 6% due to subscriber decline of 4%. EBITDA on pre Ind-AS 116 basis (adj. for one-off credits) stood at INR17.1b, up 34% QoQ (12% above est.).
* Despite the beat on 4QFY20 estimates, we see limited upward revision for FY21 numbers. This is because ARPU growth (estimated earlier in 1QFY21) may get tapered in line with Bharti.
Steep operating leverage drives strong EBITDA growth
* Revenue grew 6% QoQ to INR117.5b (in-line) along with EBITDA growth of 28% QoQ to INR43.8b. However, adjusted for INR4b one-off credits related to manpower and network cost, EBITDA grew 16% to INR39.8b (4% above est.). EBITDA on pre Ind-AS 116 basis (adj. for one-off credits) stood at INR17.1b, up 34% QoQ (12% above est.).
* Net loss came in at INR116.4b (v/s INR64.4b in 3QFY20). Adjusted net loss (for exceptional) stood at INR55b on post Ind-AS 116 basis (v/s INR58.1b in 3QFY20 and est. INR44.6b).
* Subs base continued to see downward pressure with steeper 4% QoQ decline to 291m (lost 13m subs). Decline in active subs was slower at 3.5m.
* ARPU at INR121 was up 11% QoQ (v/s Bharti’s 14% and RJio’s 2% QoQ growth), and was the big silver lining aided by last quarter’s price hike.
* Capex intensity reduced to INR18.2b in 4QFY20 (v/s INR33.3b in 3QFY20 due to the COVID-19 disruption). FY20 capex stood at INR101.3b.
* Net Debt stood at INR1,125b (v/s INR1,033.1b in 3QFY20), including the INR876.5b deferred spectrum liability. Gross debt stood at INR1,150b excluding lease liabilities. Cash stood at a mere INR24.8b, barely sufficient for one quarter’s capex.
* Operational synergy target of INR84b has been fully achieved with no incremental benefit left.
Valuation and view
* Needs cash to survive: VIL’s weak cash position with outstanding cash and equivalents of INR26.6b in FY20 and EBITDA (pre Ind-AS 116) of INR58.1b would be insufficient to service the estimated cash requirement of ~INR135b for FY21/22E and the much higher INR300b for FY23E (as the 2- year deferred spectrum payment moratorium ends). We believe ~50% price would be required to keep it afloat.
* Losing competitive position: With continued subscriber churn, especially in the data market and weakening competitive position, revenue growth through price hike is getting diluted. This is evident from 4QFY20’s results as the 11% ARPU increase translated into just 6% revenue growth. Against this, VIL has incremental network investment requirements, which may turn out to be a tall task ahead.
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