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Overall, mixed operating performance for the quarter

Our view

Overall, the performance was below expectation due to more than expected decline in subscriber base. The growth in ARPU led by Npv’21 tariff hike is encouraging.  It needs capital infusion for augmenting the capital expenditure in its network infrastructure. The net debt at Rs 1.97 trn remains high( Net debt/EBITDA(FY21) =11x ). We maintain REDUCE Rating on the stock with revised target price of Rs 11/share.

Result Highlights

* Reported revenue of Rs 97.2 bn( up 3.3% QoQ), led by 5.5% QoQ increase in ARPU to Rs 115 on account of tariff hike taken in Nov'21 and ongoing 2G to 4G migration; while the number of subscribers declined by 2.3% QoQ to 247 mn.

* EBITDA margin declined by 180 bps QoQ to 39.3%, led by higher marketing and other expenses. Net losses increased slightly QoQ to Rs 72.3 bn compared to Rs 71.3 bn in Q2FY22.  

* The number of 4G subscribers increased by 0.8mn QoQ to 117mn.

* There was slight moderation in total data usage during the quarter with average data usage per customer at 13.7GB/ Month compared to 14.5GB / Month in Q2FY22.

* Net debt increased by ~1% QoQ to 1.97 trn( which remains high at 11x on FY21 Net Debt/ EBITDA)

* Capex for the quarter was Rs 10.5 bn compared to Rs 13 bn in Q2FY22. Continues to invest in its network as its investment initiatives have led to uplift in data capacity to over 2.8x compared to Sep'21.

* Achieved around ~90% of targeted Rs 40 bn of annualised cost savings on a run rate basis as of Q3FY22.

Valuation

The stock trades at EV/EBITDA of 9.2x on FY24E EBITDA. 2G to 4G migration and   imminent tariff hike would drive growth in EBITDA of the company. We revise our target price to Rs 11/share at 9x EV/EBITDA on FY24E estimates

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