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Vodafone Idea’s (Vi’s) revenue was up 1.2% QoQ, at a marginal beat to consensus/our estimates. EBITDA margin was up by 94bps QoQ, post adjusting for the Rs2bn write-back of network expenses in Q4 (missing consensus/our estimates. Subscriber decline accelerated, with subscriber count down 4.5mn QoQ (vs. 2.7mn loss in Q4); but ARPU improved 3%QoQ. Discussions on funding from external investors press on, despite promoters’ readiness to contribute more equity (up to Rs20bn). Vi needs a steeper tariff hike to pull through, even after further conversion of dues into equity by the GoI, post moratorium. We raise FY24E/Y25E revenue 1.6%/0.3% and tone down our margin estimate, as we account for the Q1 results. We have ‘No Rating’ on Vi, amid concerns of persistent mkt-share loss, delay in fund raise and possibility of equity dilution.

Vi needs funding for capex, to arrest the obstinate subscriber loss

Vi subscriber loss accelerated to 4.5mn in Q1 vs. 2.7mn in Q4. 4G data user net-adds moderated QoQ to 0.3mn in Q1 vs. 1mn in Q4. Vi’s capex further declined, at 20% QoQ to Rs4.5bn, while its net debt (ex-leases) was up Rs25bn QoQ to Rs2,118bn. Though one of Vi’s promoter has assured financial support of Rs20bn, Vi needs more investment for paying dues. Vi also requires making investments for 5G, as it is lagging peers in 5G rollout, thereby putting its high ARPU subscribers at risk of poaching by peers.

Dilution risk remains, amid elevated net debt

As per our analysis, the subsistence of Vi post FY26 will become increasingly difficult, as the company may face funding shortfall of ~Rs250bn in FY26 and of ~Rs360bn in FY27 that will require steep tariff hike of 84% and 122%, respectively, for making payments. Further conversion of installments into equity (~Rs174bnpa) will offer little relief to Vi, as it will still cause a funding shortfall of Rs130bn in FY26 and of Rs185bn in FY27. In such an event, Vi will in any case require steep tariff hikes of 44%/63% by FY26/FY27. Moreover, this will result in cumulative dilution of 63% to 77% in 5 years (FY26-30) for shareholders, assuming conversion rate of Rs10 to Rs5.

Valuations impacted by debt and the reducing market share; retain ‘No Rating’

Vi needs to protect its subscriber base/revenue share in key circles, for generating cash and keeping its net debt at reasonable levels, as we see continued subscriber loss and stretched balance sheet as causes for concern. Moreover, Company needs a steep tariff hike, as it will require paying over Rs400bnpa once the 4-year moratorium ends. We have ‘No Rating’ on Vi, amid concerns around continued market-share loss, delay in fund raise and possibility of equity dilution, which are causing volatility in the stock price. Clarity on tariff hike/fund raise/deleveraging is the key positive trigger.

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