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Controlled cost led EBITDA growth

* VIL reported 4% QoQ EBITDA growth (pre Ind AS-116), led by reduction in network opex attributed to seasonality and decreased roaming/access cost. This is despite flat revenue growth, which was adversely affected by the loss of 4.6m subscribers. This was partially mitigated by a 2% QoQ growth in ARPU.

* VIL continues to lose market share, partly accentuated by recent tariff hikes. It continues to explore avenues for fundraising, complemented by financial support of INR20b from one of its promoters. However, the liquidity situation continues to appear bleak, given that there is a scheduled debt repayment of INR54b in the next one year, against 3QFY24 annualized EBITDA (pre IND-AS 116) of INR86b. We reiterate our Neutral stance on the stock.

Net loss continues

vVIL’s revenue was flat QoQ to INR107b (in line) as 2% QoQ subscriber loss (4.6m loss) was offset by 2% QoQ ARPU growth.

* Reported EBITDA grew 2% QoQ to INR43.5b (in line), led by a drop in network expenses (by 90bp QoQ) and a decrease in roaming and access charges (by 70bp QoQ). These were offset by a rise in subscriber addition costs (up 50bp QoQ) during the quarter. Margin improved 80bp QoQ to 40.8%.

* Pre-Ind-AS EBITDA grew 4% QoQ to INR21.4b (in line) and margin improved 80bp QoQ to 20.1%.

* Adj. net loss declined to INR77b from INR87b in 2QFY24, due to higher EBITDA.

* VIL reported a gain of INR7.6b from the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) ruling.

* Net debt remained high at INR2.1t. About 97% of this debt is attributed to Spectrum and AGR, whereas the market debt declined INR18b to INR61b.

* Capex spending remained at INR3.3b in 3Q and INR13b in 9MFY24.

* The 9MFY24 revenue/Pre-Ind-AS EBITDA/PAT rose 1%/was flat/up 3% YoY.

Highlights from the management commentary

* Following the reduction in bank loans, the company’s primary focus will shift toward the repayment of creditors/vendors.

* Expanded the tariff hike to include 16 circles by reducing the validity from 28 days to 15 days in the base plan. The company observed a loss of subscribers due to the shortened validity plan, prompting a strategic shift toward promoting unlimited plans.

* The company continues to upgrade non-4G sites to 4G sites, by reforming the spectrum. Expect 5G to roll out in 6-7 months.

* Out of the total INR54b debt payable in the next one year, INR16b pertains to OCD (where repayment is dependent on whether conversion happens or not). The remaining portions represent unconditional payments.

Valuation and view

* VIL has experienced continued rise in ARPU, led by the shift to 4G, higher data monetization, and increase in minimum recharge vouchers. However, there has been a notable increase in subscriber churn during this period.

* The capex directed toward the rollout of 4G and 5G holds significant importance. Thus, the much-awaited capital raise continues to be crucial, as it is essential to ensure immediate liquidity and facilitate the expansion of the network.

* Further, it still holds a debt of INR2.1t with an annual installment of INR430b from FY26 onwards. This looks challenging against 3QFY24 annualized EBITDA (IND-AS 116) of INR86b.

* The significant amount of cash required to service debt leaves limited upside opportunities for equity holders, despite the high operating leverage opportunity from any source of ARPU increase. The current low EBITDA will make it challenging to service debt without an external fund infusion. Assuming 14x EV/EBITDA, with a net debt of INR2.1t, leaves limited opportunity for equity shareholders. We reiterate our Neutral rating on the stock.

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SEBI Registration number is INH000000412