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Our view

The densification of towers required for improving 4G coverage/ capacity and the implementation of 5G network would drive the addition of BTS. The dividend yield of around 5‐6% offers protection from downside. The phase of pressure on the number of co‐locations is largely over and the number of colocations is expected to see consistent growth going ahead, led by network capex on the part of telecom operators to meet higher data/coverage demand. However, the precarious financial situation of Vodafone idea is a major  risk factor and a big overhang on the stock. Valuation remains attractive at PE of 9.6x on FY23 earnings. We maintain ADD Rating on the stock and cut down our target price to Rs 250 to factor in growing risk about sustainability of Vodafone Idea Ltd.

Result Highlights

* Reported Core revenue of Rs 42,113mn, up 1.7% QoQ( inline). The growth was led by 0.9% QoQ increase in the number of colocations and 0.6% QoQ increase in average sharing revenue per sharing operator.

* Negative energy spread ( ‐2.29%) led to decline in EBITDA margin by 66bps QoQ (slightly below the estimate)

* Operationally, the average sharing factor was flat QoQ at 1.8x. (same as closing sharing factor). The number of towers increased by 1% QoQ to 180,997; while the number of colocations increased by 0.9% QoQ to 325,355.

* Net debt with lease liabilities was almost flat QoQ at Rs 192bn.

* There is slight moderation in capex as capital expenditure for the quarter was at Rs 7.5 bn compared to Rs12.9 bn in Q4FY21.

* The issue of survival of Vodafone Idea has been a big overhang for the stock and is a big factor in the overall business outlook

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