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Muted performance as it continues to lose subscribers

Vodafone Idea (IDEA) reported sequentially muted performance for the quarter. Both, sequential revenue growth and EBITDA margin were below expectation. It reported sequential revenue growth of 0.1% QoQ, led by led by 3.1% QoQ increase in Wireless ARPU for the quarter. While, the number of mobile subscribers decreased by 5.8mn QoQ to 228mn. There was sequential improvement in EBITDA margin(up 76 bps QoQ) led by led by lower network operating cost. Net debt increased to Rs 2.23 trillion vs Rs 2.20 trillion as of Q2FY23.

It continues to lose subscribers(mainly in 2G segment) and that adversely impacts revenue growth. The addition of 4G subscribers remains muted. It needs capital infusion for augmenting the capital expenditure to catch up with peers in terms of 4G coverage/capacity. It has still not announced any timeline with regard to 5G implementation. We expect that 2G to 4G migration would continue to drive ARPU growth. We expect EBITDA Margin to improve in near term led by lower SUC charges and some savings on rental after recent renegotiation with Indus Towers. We estimate revenue CAGR of 12.3% over FY22?24E with average EBITDA margin of 43.6%. We maintain our REDUCE rating on the stock with target price of Rs 7.5/share based on EV/EBITDA of 9.5x on FY24E. The stock trades at EV/EBITDA of 12.9x/10.2x on FY23E/FY24E.

Result Highlights

* Reported revenue of Rs 106.2bn (up 0.1% QoQ, up 9.3% YoY), led by 3.1% QoQ increase in Wireless ARPU for the quarter (Q3FY23 ARPU at Rs 135). While, the number of mobile subscribers decreased by 5.8mn QoQ to 228mn.

* EBITDA margin improved by 76 bps QoQ to 39.4%, led by decrease in network operating cost (down 4.4% QoQ).

* Number of 4G subscribers increased by 1mn QoQ to 121.6mn; while average data usage by 4G subscriber increased to 15.1GB/ month in Q3FY23 from 15.0 GB/ month in Q2FY23.

* During the quarter, it shut down ~2,800 3G sites; while it added ~2,000 4G sites to expand its 4G coverage.

* Capex spend for the quarter stands at Rs. 7.5 billion vs Rs. 12.1 billion in Q2FY23.

* Net losses increased to Rs 79.9bn vs Rs 75.9bn in Q2FY23.

* Net debt increased to Rs 2.23 trillion vs Rs 2.20 trillion as of Q2FY23

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