Sell Vodafone Idea Ltd For Target Rs. 6 - Yes Securities Ltd
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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 1.2% QoQ, led by 3% QoQ increase in ARPU to Rs 139/month; while subscriber base declined by 4.5mn QoQ to 221mn. 4G addition was muted for the quarter at 0.3mn QoQ. There was sequential decline in EBITDA margin(down 96 bps QoQ) led by higher marketing cost. Net debt increased to Rs 2.12 trillion vs Rs 2.09 trillion as of Q4FY23. 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 10.7% over FY23?25E with average EBITDA margin of 41.0%. 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 14.1x/11.7x on FY24E/FY25E.
Result Highlights
* Reported revenue of Rs 106.5bn (up 1.2% QoQ, up 2.4% YoY). ARPU during the quarter increased to Rs 139 from Rs 135 in Q4FY23. While, the number of mobile subscribers decreased by 4.5mn QoQ to 221.4mn.
* EBITDA margin decreased by 96 bps QoQ to 39.0%, led by increase in Marketing Expenses (up 3.5% QoQ).
* Number of 4G subscribers increased by 0.3mn QoQ to 122.9mn; while average data usage by 4G subscriber remained flat at 15.6GB/ month.
* During the quarter, it added ~1,000 4G sites to expand its 4G coverage.
* Capex spend for the quarter stands at Rs. 4.5 billion vs Rs. 5.6 billion in Q4FY23.
* Net losses increased to Rs 78.4bn vs Rs 63.9bn in Q4FY23.
* Net debt stood at Rs 2.12 trillion vs Rs 2.09 trillion as of Q4FY23.
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