Sell Vodafone Idea Ltd For Target Rs.10 -Yes Securities
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Result Synopsis
Vodafone Idea (IDEA) reported inline performance for the quarter. Both, sequential revenue growth and EBITDA margin were as per expectation. It reported sequential decline in revenue of 0.4% QoQ, however, ARPU increased by 2% QoQ to Rs 145/month; while, subscriber base declined by 4.6mn QoQ to 215.2mn. 4G addition was better than expected for the quarter at 0.9mn QoQ. There was sequential improvement in EBITDA margin (up 80 bps QoQ) led by decrease in roaming cost. Net debt increased to Rs 2.15 trillion in Q3FY24 vs Rs 2.13 trillion as of Q2FY24.
It continues to lose subscribers (mainly in 2G segment) and that adversely impacts revenue growth. The addition of 4G subscribers remains modest. It needs capital infusion for augmenting the capital expenditure to catch up with peers in terms of 4G coverage/capacity. It has still not announced any timeline with regard to 5G implementation. We expect that 2G to 4G migration would continue to drive ARPU growth. We expect EBITDA Margin to improve in near term led by continued focus on operational efficiency. We estimate revenue CAGR of 3.6% over FY23?26E with average EBITDA margin of 41.8%. We maintain our SELL rating on the stock with target price of Rs 10/share based on EV/EBITDA of 13.1x on FY26E. The stock trades at EV/EBITDA of 14.7x/13.8x on FY25E/FY26E.
Result Highlights
* Reported revenue of Rs 106.7bn (down 0.4% QoQ, up 0.5% YoY). ARPU during the quarter increased to Rs 145 from Rs 142 in Q2FY24. While, the number of mobile subscribers decreased by 4.6mn QoQ to 215.2mn.
* EBITDA margin increased by 80 bps QoQ to 40.8%, led by decrease in Roaming Charges (down 7.7% QoQ).
* Number of 4G subscribers increased by 0.9mn QoQ to 125.6mn; while average data usage by 4G subscriber decreased to 15.4GB/ month from 15.8GB/ month sequentially.
* During the quarter, it added ~1,400 4G sites to expand its 4G coverage.
* Capex spend for the quarter stands at Rs. 3.3 billion vs Rs. 5.2 billion in Q2FY24.
* Net losses decreased to Rs 77.4bn vs Rs 87.4bn in Q2FY24.
* Net debt stood at Rs 2.15 trillion vs Rs 2.13 trillion as of Q2FY24.
