Vodafone Idea Rating – Selling: Key Variables Show Improved Q4 Impression

Data usage increased 8.2% quarter-on-quarter to 4.489 billion MB due to improved network quality.

Vodafone Idea (VIL) cash Ebitda at T4FY21 at Rs 22 billion benefited from one-off network cost gains of Rs 4.5 billion; Adjusted EBITDA cash is lower than our estimate despite cost reduction efforts. While VIL saw marginal improvement in adding (sub) 4G subscribers and lower total subscriber loss, that’s too little to make a difference, in our opinion. We expect debts to be paid soon and VIL may have a cash flow mismatch. Efforts to raise funds have not yet yielded results. Government relief on spectrum payment and reduction of AGR liability on SC accepting reconciliation are further hopes. We reduced our Ebitda estimate by 11% / 14% for FY22e / FY23e, but maintained our price target of Rs 5 as we increase the Ebitda multiple to 13.3x (up from 10.5x earlier). TO SELL.

Key variables showed improved impressions: VIL only suffered a 2-minute sub-loss, as in the previous quarter. The company added 4.2 million 4G subscribers (this figure has improved in recent quarters). The gross addition of submarines has improved to 22 nm (compared to 13.5 nm in the past 12 months), which helps reduce the loss of submarines. Data usage increased 8.2% quarter-on-quarter to 4.489 billion MB due to improved network quality.

Adjusted for the IUC impact, revenues down 2.2% quarter on quarter to Rs 96 billion. VIL’s mobile revenue was stable quarter-on-quarter if adjusted 2 days less during the quarter, and the IUC impact. This is despite the loss of 2 million subscribers due to the increase in 4G subscribers, which should have contributed to the organic growth of ARPU. On a published basis, the ARPU fell 11.6% qoq to Rs 107. The postpaid subbase edged up from 0.1 million to 20.9 million, which should also have helped.

Cash Ebitda (adjusted for Ind-AS 116) at Rs 22 billion. EBITDA at Rs 44 billion increased by 2.9% quarter on quarter due to one-off cost savings (network and IT) of Rs 4.5 billion; Adjusted EBITDA was down 7.6% quarter on quarter despite strong efficiency in cost savings. Adjusted for one-off items, network costs decreased 1.1% qoq, employee costs decreased 13% qoq while selling and administrative expenses increased 18% quarter on quarter. Adjusted for Ind-AS 116, Ebitda was Rs 22 billion (up 3% quarter on quarter and down 18% quarter on quarter if we adjust one-off gains). EBITDA should have been impacted by zero UCI revenues, as VIL was previously a net UCI recipient.

The total debt, including AGR dues and accrued interest, amounted to Rs 1,867 billion. The figure includes a deferred spectrum liability of Rs 963 billion, an AGR liability of Rs 610 billion and a bank loan of Rs 231 billion. The debts due in the next 12 months are: (i) the annual payment (including interest) on the AGR debt of Rs 80 billion on March 22 (this assumes a nil payment for the March 21 contributions, what remains to be clarified); (ii) bank guarantee of Rs 70 billion to be renewed (VIL must provide an additional bank guarantee of Rs 10 billion); (iii) annual payment towards the spectrum due in April 22 – Rs 82 billion. The company has asked DOT to postpone some of the payments. We expect debt repayment to arrive soon, while the availability of funds remains a challenge.

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