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The end game!

About the stock: Vodafone Idea (VIL) is India’s third largest telecom operator with ~25.5 crore wireless customers in India.

* Given the balance sheet stress and delayed 4G network expansion, it is facing customer churn and lags the key listed peers in terms of 4G network coverage, ARPU and margins

Q1FY22 Results: VIL reported weak Q1FY22 results.

* Reported revenues were down 4.7% QoQ to | 9,152 crore with ARPU decline of ~2.8% QoQ to | 104 due to extension of validity for low cost customers during the second wave. The subscriber base declined by ~12.4 million to 255.4 mn. 4G sub base also saw a decline ~1 mn QoQ to 112.9 million, clearly showing stress. The post-paid sub base at 20.2 mn was down by 0.7 mn QoQ

* Reported EBITDA margins was down 538 bps QoQ at 40.5%

* The reported loss was at | 7319 crore

What should investors do?

VIL’s share price has declined over 80% in the past three years (post-merger).

* We maintain SELL recommendation on the company as there remains uncertainty on survival due to lack of funding clarity/relief/major tariff hike

Target Price and Valuation: We value VIL at a target price of | 4.

Key triggers for future price performance:

* Major tariff hike or floor tariff implementation

* Substantial fundraise and/or government support in terms if waivers/relief etc.

* Lowering of overall subscriber churn

Alternate Stock Idea: Besides VIL, we like Bharti Airtel in the telecom space

* A play on favourable industry structure - a good enough kicker for eventual hike in tariff as well as superior digital play in the medium to long term

* BUY with a target price of | 720

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