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Good 1Q; debt raise and tariff hike remain the key

* Vodafone Idea’s (Vi) 1QFY27 was ahead of our estimates, with pre-IND AS EBITDA rising ~1.8% QoQ (+13.5% YoY) to INR24.8b (7% beat), driven by subscriber mix improvements (customer ARPU up ~2.6% QoQ to INR195) and lower network opex (flat QoQ and YoY, 6% below).

* Reported net adds turned positive for the first time since the merger. However, we note that customer wireless subs (ex-M2M SIMs) declined by a higher ~1.7m (vs. -1.1m in 4QFY26) and remains one of the key concerns.

* Vi has raised INR64b through partial proceeds from warrants issued to promoter, funded, and non-funded bank limits, which has enabled placement of INR90b orders for capex (to be spent by 9MFY27). Further, the company remains engaged with SBI-led consortium of banks for raising funds to meet its capex target of INR450b over FY26-29.

* Management reiterated its target of increasing pre-IND AS EBITDA to ~INR270b by FY29 (vs. ~INR99b current annualized run-rate). However, we build in a lower cumulative cash EBITDA of ~INR333b over FY26-29 (vs. management’s expectation of ~INR600b), which necessities the need for expedited and larger fund raise to support the company’s capex plans.

* Further, we believe Vi’s revival hinges on:

1) sustained tariff hikes or change in tariff construct

2) stabilization of consumer wireless subs trends

3) more rationale competition on subscriber acquisition

4) continuation of benign regulatory regime, with requirement of further relief on spectrum dues.

* We raise our FY27-28E ARPU/revenue by ~1-3% and fine-tune our FY27-28E pre-Ind AS EBITDA for a stronger 1Q, though offset by potential increase in network opex (accelerated rollouts, higher diesel cost).

* Reiterate our Neutral rating on Vi with a revised TP of INR11. Vi’s significant valuation premium (~26.6x Sep’28 pre-IND AS EV/EBITDA), compared to its larger and more profitable peer (~10.5x for Bharti India), caps the upside from potential benefits of acceleration in network roll-out.

Key highlights from the management meet

* ARPU growth drivers: Customer ARPU (ex-M2M) grew ~10% YoY to INR195 in 1QFY27 (+2.6% QoQ), driven by premiumization and higher data usage. Management noted significant headroom for subs mix improvement, given 2G subs account for ~33% of customer wireless subs mix. Further, with improved 4G network capacity and selective 5G rollouts, the company is witnessing increased traction with data subs upgrading to unlimited and non-stop hero plans, which provides further organic ARPU upsides in the absence of tariff hike.

* Subscriber trends: Vi delivered first quarter of positive reported net adds since the merger, largely driven by increased traction in M2M SIMs (for automatic meter reading, vehicle tracking, connected cars, and PoS machines). Management noted that the decline in VLR and customer wireless subs during 1Q was due to seasonality, while underlying gross and net adds, as well as customer retention trends, remain healthy (monthly churn dipped ~24bp QoQ).

* Funding and debt raise: Vi raised INR64b through partial proceeds from warrants (INR11.8b) and funded and non-funded limits from external commercial borrowings and Indian private sector banks. The company remains engaged with SBI-led consortium of banks to close the larger fund raise.

* Capex: 1Q capex was adversely impacted by supply chain constraints, and management expects capex to spike over the coming quarters. With the closure of the initial fund raise, Vi has placed orders for capex worth INR90b (till 9MFY27) and reiterated its ambition of INR450b capex spends over FY26-29.

* Network rollout: Management expects to accelerate the pace of network rollout to 3-3.5k monthly site additions with an aim to add 55-57k 4G sites over the next 18 months to achieve coverage parity with peers on 4G. Further, it targets to add ~86k 5G sites over FY26-29 (vs. currently ~16k sites on 5G).

* Guidance: Management reiterated its three-year guidance of achieving doubledigit revenue growth and raising cash EBITDA by 3x to INR270b by FY29.

Valuation and view

* Vi management’s ambition of double-digit revenue growth and increasing cash EBITDA 3x over FY26-29 remains a tall ask and would require several things to fall in place, such as

1) expedited closure of debt raise

2) sustained tariff hikes or a change in tariff construct

3) stabilization of customer wireless subscriber base

4) more rationale competition on subscriber acquisition

5) continuation of benign regulatory regime with relief on spectrum repayments.

* We note not all of these variables are in management’s control and if Vi were to start becoming a competitive third player, we would expect peers with superior FCF, network, and product offerings to raise the competitive intensity.

* We raise our FY27-28E revenue by ~1-3%, driven by ~1-2% higher ARPU assumption, while we fine-tune our FY27-28E pre-Ind AS EBITDA for stronger 1Q and potential increase in network opex (accelerated rollouts, higher diesel cost).

* We reiterate our Neutral rating on Vi with a revised TP of INR11, based on DCF backed ~14.3x Sep’28E EV/EBITDA (implies ~25x Sep’28 pre-IND AS EBITDA).

* Vi’s significant valuation premium (~26.6x Sep’28 pre-IND AS EV/EBITDA), compared to its larger and more profitable peer (~10.5x for Bharti India), caps the upside from potential benefits of an acceleration in network roll-out.

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