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Inline performance as it continues to lose subscribers

Result Synopsis

Vodafone Idea (IDEA) reported inline performance for the quarter. Both, sequential revenue growth and EBITDA margin were as per expectation. It reported sequential revenue growth of (0.8)% QoQ, led by decline in subscriber base; while ARPU remained flat QoQ at Rs 135. The number of mobile subscribers decreased by 2.7mn QoQ to 226mn. There was sequential improvement in EBITDA margin(up 61 bps QoQ) led by lower network operating cost. Net debt decreased to Rs 2.09 trillion vs Rs 2.23 trillion as of Q3FY23, led by conversion of part of deferred interest to government equity.

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 continued focus on operational efficiency. We estimate revenue CAGR of 11.5% over FY23?25E with average EBITDA margin of 42.3%. We maintain our SELL rating on the stock with target price of Rs 6/share based on EV/EBITDA of 8.5x on FY25E. The stock trades at EV/EBITDA of 13.4x/11.3x on FY24E/FY25E.

Result Highlights

? Reported revenue of Rs 105.3bn (down 0.8% QoQ, up 2.9% YoY). ARPU during the quarter remained flat QoQ at Rs 135. While, the number of mobile subscribers decreased by 2.7mn QoQ to 226mn.

? EBITDA margin improved by 61 bps QoQ to 40.0%, led by decrease in network operating cost (down 7.7% QoQ).

? Number of 4G subscribers increased by 1mn QoQ to 122.6mn; while average data usage by 4G subscriber remained flat at 15.1GB/ month.

? During the quarter, it added ~1,900 4G sites to expand its 4G coverage.

? Capex spend for the quarter stands at Rs. 5.6 billion vs Rs. 7.5 billion in Q3FY23.

? Net losses decreased to Rs 64.2bn vs Rs 79.9bn in Q3FY23.

? Net debt decreased to Rs 2.09 trillion vs Rs 2.23 trillion as of Q3FY23

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