Sell Vodafone Idea Ltd For Target Rs. 8 - Yes Securities
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Inline operating performance as it continues to lose subscribers
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 revenue growth of 0.6% QoQ, led by 2% QoQ increase in ARPU to Rs 142/month; while, subscriber base declined by 1.6mn QoQ to 219.8mn. 4G addition was better than expected for the quarter at 1.8mn QoQ. There was sequential improvement in EBITDA margin (up 95 bps QoQ) led by decrease in marketing cost. Net debt increased to Rs 2.13 trillion vs Rs 2.12 trillion as of Q1FY24.
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 7.6% over FY23?25E with average EBITDA margin of 41.1%. We maintain our SELL rating on the stock with target price of Rs 8/share based on EV/EBITDA of 9.0x on FY25E. The stock trades at EV/EBITDA of 15.3x/12.9x on FY24E/FY25E.
Result Highlights
? Reported revenue of Rs 107.2bn (up 0.6% QoQ, up 1.0% YoY). ARPU during the quarter increased to Rs 142 from Rs 139 in Q1FY24. While, the number of mobile subscribers decreased by 1.6mn QoQ to 219.8mn.
? EBITDA margin increased by 95 bps QoQ to 40.0%, led by decrease in Marketing Expenses (down 10.1% QoQ).
? Number of 4G subscribers increased by 1.8mn QoQ to 124.7mn; while average data usage by 4G subscriber increased to 15.8GB/ month.
? During the quarter, it added ~900 4G sites to expand its 4G coverage.
? Capex spend for the quarter stands at Rs. 5.2 billion vs Rs. 4.5 billion in Q1FY24.
? Net losses increased to Rs 87.4bn vs Rs 78.4bn in Q1FY24.
? Net debt stood at Rs 2.13 trillion vs Rs 2.12 trillion as of Q1FY23.
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SEBI Registration number is INZ000185632
