Reduce Vodafone Idea Ltd For Target Rs.8 - Yes Securities
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Result Highlights
* Revenue declined by 11.8% QoQ to Rs 96.1bn. Out of which, 9.6% QoQ decline is due to shift to Bill and Keep regime from Jan 01, and remaining 2% decline is mainly due to lesser number of days in Q4FY21.
* Reduction in roaming and access charges as per the Bill and Keep Regime and focus on cost optimization led to 2.9% QoQ increase in EBITDA , with EBITDA margin improving by 654bps QoQ due to lower denominator effect.
* On account of high depreciation and finance cost( due to high debt),it reported net loss of Rs 70.2bn compared to net loss of Rs 45.3 bn in Q3FY21.
* Net debt remained high at Rs 1,799.6 bn (around 10x on FY21 EBITDA, with interest service coverage ratio at 0.57x).
* Operationally, ARPU was down to Rs 107 from Rs 121 in Q3FY21, due to removal of IUC charges on domestic calls.
* Total number of subscribers decreased by 2 mn QoQ to 267.8 mn. On positive side, the number of 4G subscribers grew by 4.2 mn QoQ.
* Capex spend in Q4FY21 was Rs. 15.4 billion vs Rs. 9.7 billion in Q3FY21. Total capex spend for FY21 stands at Rs. 41.5 billion
Our view:
The stability has returned to the telecom industry with 3 private+1(public) structure. The subscriber base of the company has stabilised as per Mar’21 TRAI data and investment in its network has led to some improvement in its network quality as per Ookla speed tests. However, it continues to be loss making due to low ARPU and heavy interest payments. There is still no clarity about timeline of next tariff hike by the telecom industry.
There is also overhang of 5G related capex and the ongoing uncertainty about the fund raise by Vodafone Idea. The debt for the company remains high at 10x on FY21 EBITDA and the operating income is hardly enough even to cover interest payments. It needs to infuse fresh capital in the firm and also needs support from the government through moratorium on payment of spectrum dues. It trades at EV/EBITDA of 7.1x on FY23E EBITDA. Initiate coverage on the stock with REDUCE rating.
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