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Vodafone Idea (Vi)’s revenue was down 0.4% QoQ, missing consensus/our estimates. EBITDA margin was up by 80bps QoQ (a beat), led by lower network cost. Though 2% QoQ ARPU improvement was the key positive, subscriber loss persisting remains the main worry. Despite promoters’ readiness to contribute added equity (up to Rs20bn), and Company’s ongoing discussions on funding by external investors, the fundraise remains elusive. Vi needs funding for capex (for the 5G launch) to arrest the slide in number of subscribers. We cut FY24E/FY25E/FY26E revenue by 0.9%/1.6%/0.7%; also, we increase our margin estimate, adjusting for Q3 results. We have ‘No Rating’ on Vi, amid concerns on continued mkt-share loss, delay in fundraise, and possibility of equity dilution. Clarity on the fundraise and tariff hike is a key positive trigger.

Q3 result: ARPU improves; however, subscriber loss rate remains key concern

Revenue was down 0.4% QoQ (missing estimates), while EBITDA margin was up by 80bps QoQ (at a beat) led by lower network cost. PAT loss contracted, backed by EBITDA growth and ‘exceptional item’. Key positives for the quarter were the 2% QoQ improvement in ARPU (led by change in entry-level plan and subscriber upgrades) and further decline in bank debt to Rs60.5bn (from Rs79bn QoQ). Key negatives include: i) pickup in subscriber loss rate (4.6mn QoQ vs. 1.6mn in Q2); ii) 4G data user net-adds moderating to 0.9mn QoQ (vs. 1.8mn in Q2); iii) data per user declining 4% QoQ as users engaged in watching the cricket world cup on other mediums; iv) Vi’s capex moderating to Rs3.3bn (vs. Rs5.2bn in Q2). Also, Vi’s net debt (ex-leases) was up by Rs20bn QoQ to Rs2,146bn, led by increase in deferred spectrum obligations.

Reduced cash constraint till H1FY26; dilution risk sticks; retain ‘No Rating’

Vi’s bank debt at the end of Q3FY24 stands at Rs60.5bn (excluding Rs16bn of OCD to ATC). Company has to pay ~Rs32bn in bank debt in the next one year. Rs20bn financial support (when received) from the promoters will reduce cash constraint for Vi till H1FY26, as bank debt obligation has reduced (Exhibit 3). Vi needs to protect its subscriber base/revenue share in key circles for generating cash, as its active subscriber market share in now below 20% (Exhibit 5). Vi will need to make a payment of ~Rs300bn in H2FY26 and ~Rs450bn from FY27, for spectrum/AGR dues and capex. This may require tariff hike as well as further equity conversion of Rs174bn by the GoI each year, from FY27. Vi may require ARPU to increase from Rs145 to ~Rs230 by FY27-end, which looks achievable, given: 1) another round of tariff hike looking imminent post elections; 2) Vi likely converting its ~95mn 2G users to 4G; and 3) reduced validity on the Rs99 minimum recharge pack (from 28 days to 15) in 16 circles. We have ‘No Rating’ on Vi, amid concerns around continued market-share loss, delays in fundraise, and possibility of equity dilution. Clarity on the fundraise and tariff hike is the key positive trigger.

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