Vodafone Idea (VI) delivered in-line Q4FY22 outcomes with 5.4% q-o-q income progress led by a 7.5% spurt in ARPU and three.4mn erosion in subscriber base (versus 5.8mn decline in Q3FY22). While VI’s working efficiency is secure, the basic situation of excessive monetary leverage will be addressed solely by a big tariff hike and fairness infusion. Access to capital is essential contemplating upcoming 5G spectrum auctions, however the firm’s means to spend money on community is constrained by excessive debt and low money Ebitda. Promoters have infused Rs 45 bn, however that’s not ample. We await the subsequent capital-raise. In absence of any visibility of a significant tariff hike and challenges in elevating capital, we retain ‘Reduce’ with a TP of Rs 7.
Operating efficiency secure: VI’s income grew 5.4% q-o-q to Rs 102.4 bn. APRU elevated to Rs 124, from Rs 115. The firm added 1.1mn 4G subscribers within the quarter. Overall margins elevated 610bp to 45.4%. There was Rs 1.5 bn one-off within the community & IT value, leading to adjusted Ebitda of Rs 45 bn. Cash on books now stands at Rs 14.6 bn, down from Rs 15 bn in Q3 whereas internet debt declined to Rs 1.96 trn.
Awaiting capital-raise and tariff hike: We consider VI has a really small window to lift capital and put together itself for 5G contemplating spectrum auctions are scheduled for H2FY23. Considering VI has been lagging its friends when it comes to community investments, well timed capital-raise and community funding will likely be essential for long-term sustainability of the enterprise. Besides, ARPU must double for VI over the subsequent 3-4 years for it to fulfill its present debt obligations.
Outlook: Leverage stays excessive – The firm additionally wants to make sure it efficiently upgrades its 2G subscriber base to 4G and retains total subscriber base in order that ARPU progress interprets to income progress. The inventory is buying and selling at 11x FY23e EV/Ebitda. Maintain ‘REDUCE/SU’.
Source: www.financialexpress.com”