Sell Vodafone Idea Ltd for the Target Rs.6 By Emkay Global Financial Services Ltd
In-line results; deleveraging awaited
Vodafone Idea (VI) reported broadly in-line results, with 1.6% QoQ increase each in revenue and EBITDA. The decline in subscribers (1mn QoQ) has now settled at a much lower level, compared to the 3.6mn QoQ average in FY25. While the subscriber base and the P&L have stabilized, leverage remains high; The Supreme Court (SC) has allowed the government to reassess VI's AGR dues (Rs759bn as of Mar-25). While this will reduce leverage to an extent, VI’s current EBITDA is insufficient to service the remaining debt (Rs1.96trn as of Mar-25), keeping in mind the requisite capex roadmap. This mandates further capital infusion and/or relief from the spectrum debt. In the absence of any clarity on the same and expensive valuations (14.8x FY27E EV/EBITDA), we maintain SELL with a TP of Rs6.
Subscriber decline has been arrested
VI reported revenue of Rs111.9bn (Street: Rs111.4bn), up 1.6% QoQ, with 1.2% QoQ increase in ARPU to Rs167, while the subscriber base declined by 1mn QoQ to 196.7mn. ARPU increase for VI was the same as that of Reliance Jio (1.2% QoQ) and lower compared to Bharti Airtel (2.3% QoQ). While VI’s data subscriber base declined by 0.1mn QoQ to 134.7mn, its 4G/5G subscriber base increased by 0.4mn QoQ to 127.8mn. EBITDA increased 1.6% QoQ to Rs46.9bn (Street: Rs46.4bn), with flat EBITDA margins QoQ. Reported PAT was Rs-55.2bn vs the Street’s expectation of Rs66.4bn.
Capital raise and deleveraging remain key for sustainable operations
The SC has allowed the government to reconsider VI’s AGR liabilities; considering this to be a matter within the policy domain of the Union, the government itself has a substantial equity, and the issue is likely to have a direct bearing on 200mn consumers. With this, the government will now have a wiggle room to create a plan for long-term sustainability of the company. We note that of the total debt of Rs1.96trn, Rs0.76trn pertains to AGR liabilities and Rs1.18trn pertains to spectrum debt (as of Mar-25). With this, leverage remains high even without AGR dues, and the government will have to consider a plan to reduce spectrum debt. We believe that further capital infusion and restructuring of spectrum and AGR dues are critical for long-term sustainability of the company.
Outlook and valuations: Awaiting government’s decision; expensive valuations
We see the SC’s favorable decision as a step toward creating a more competitive telecom market in India, as we await the government’s plan and how it intends to resolve the high spectrum debt of VI. Any policy change toward spectrum costs can potentially benefit other telecom operators; however, we await more clarity on the same. We note that VI’s valuations at 14.8x FY27E EV/EBITDA are expensive. We maintain SELL, considering the high leverage, high valuations, and lack of clarity regarding the government’s stance on spectrum debt. Our TP of Rs6 is on 12x TTM Q2FY28E EBITDA.
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