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In active discussion to close a fund raise

Vodafone Idea remains a loss making telecom operator with around 220mn subscribers. Its debt burden at ~Rs 2 trn remains high and it is dependent on moratorium on all spectrum related dues for its survival. Its ARPU at Rs 142/month is the lowest among 3 private telecom operators, due to higher mix of 2G subscribers. The government holds around 33% stake due to conversion of interest on AGR dues to Government equity. Overall, its financial position remains weak and it needs to raise around Rs 400bn-500bn to catchup on its 4G/5G capex and other near term financial obligations. It is in active discussion with investors with regards to fund raise program and is exploring to selling its fiber assets for around $1.5bn. It has around 160,000 km of fiber assets.

Continuous loss in subscribers is matter of concern

It continues to lose subscribers due to inadequate network coverage/capacity on account of years of underinvestment in its network and thus has been losing market share to Bharti Airtel and Reliance Jio. 4G addition has been muted for the company at around 1mn per quarter. It needs to ramp up its 4G network and fast track its 5G rollout to improve customer retention. The 5G implementation by Airtel and Jio might increase churn among premium customers of VIL. Its usage metrics such as average voice usage per customer per month at 613minutes and data usage at 15GB/month/sub remains behind the peers Airtel and Reliance Jio.

ARPU lowest in the industry

Its wireless ARPU at Rs 142/month is the lowest in the industry due to higher 2G customer mix compared to Airtel and Jio. Its ARPU growth over the last two years has been sluggish compared to its peers. It needs tariff hike along with higher 4G customer mix to drive growth in ARPU. However, its postpaid customers have been sticky in nature and account for ~10% of its total subscribers.

Urgent capital infusion required

It needs to raise around Rs 400-Rs 500bn to augment its network coverage/capacity and clear near term dues. It needs to firm up its plans regarding 5G rollout. The fund raise exercise is expected to become slightly easier after the conversion of interest on AGR dues to government equity. The management is in talks with several potential investors.

Outlook and Recommendation

It continues to lose subscribers (mainly in 2G segment) and that adversely impacts revenue growth. The addition of 4G subscribers remains muted. It needs massive 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 cost optimisation and some savings on rental after recent renegotiation with Indus Towers. We estimate revenue CAGR of 12.0% over FY23?26E with average EBITDA margin of 44.7%. We rollover to FY26 estimates and maintain our SELL on the stock with target price of Rs 10/share based on EV/EBITDA of 7.5x on FY26E. The stock trades at EV/EBITDA of 12.9x/11.2x on FY25E/FY26E.

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