Reduce Vodafone Idea Ltd For Target Rs.9 - Yes Securities
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Some return of stability for the company
Our view
Overall, it delivered improved operating performance in terms of 4G addition and ARPU growth. 2G to 4G migration would drive ARPU increase but a generalized tariff hike is required to improve the health of the company. It needs capital infusion for augmenting the capital expenditure in its network infrastructure. The net debt at Rs 1.94 trn remains high( Net debt/EBITDA(FY21) =11x ). We maintain REDUCE Rating on the stock with revised target price of Rs 9/share.
Result Highlights
* Reported revenue of Rs 94.1bn( up 2.7% QoQ), aided by pickup in economic activities and easing of lockdown restrictions induced after 2nd wave of covid. The sequential growth in revenue is led by 5% QoQ growth in wireless ARPU to Rs 109. The increase in ARPU was led by increase in entry level prepaid pricing plan from Rs 49 to Rs 79 in a phased manner; as well as increase in tariffs in some postpaid plans.
* The total number of subscribers declined by 2.4mn QoQ to 153 mn( moderation in decline in subscribers), led by increasing focus on improving network quality. The number of 4G subscribers showed decent 3.2mn QoQ growth to 116.2mn. Data usage per 4G customer is 14.5 GB/ Month compared to 11.8 GB/ Month a year ago. Subscriber churn improved to 2.9% in Q2FY22 vs 3.5% in Q1FY22.
* EBITDA margin increased by 56 bps QoQ to 41.1%, led by control on other expenses in the quarter. Net losses has narrowed to Rs 71.3bn compared to net loss of Rs 73.1 bn in Q1FY22.
* Net debt increased slightly QoQ to Rs 1.94 trn compared to Rs 1.91 trn ( Q1FY22). Capex for the quarter was Rs 13 bn vs Rs 9.4bn in Q1FY22.
Valuation
The stock trades at EV/EBITDA of 9.5x on FY24E EBITDA. 2G to 4G migration and imminent tariff hike would drive growth in EBITDA of the company. We rollover to FY24E estimates and revise our target price to Rs 9/share at 9x EV/EBITDA on FY24E
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