2QFY25 Results Update: Vodafone Idea by MOFSL

Vodafone Idea (Vi) reported a broadly in-line set with revenue/EBITDA growing 4%/8% QoQ, driven by the partial benefit of tariff hike flow-through and a part offset by a continued decline in the subscriber base.

Vi’s net debt increased ~INR92b on repayment of vendor/banking dues and spectrum purchases, while capex inched up to INR14b (from INR8b QoQ). Management has guided for a capex of INR80b in 2H.

Vi continued to lose market share to peers in 2Q with losses in data subs and weaker customer engagement metrics. Bharti was the biggest gainer in 2Q, gaining ~90bp QoQ market share on RMS and ~40bp QoQ on SMS.

Vi’s network investments are contingent on debt raise, which in turn is dependent on securing bank guarantee waivers and continued support from GoI (INR440b+ annual repayments to GoI from 1HFY26).

We believe gaining back subscribers would be a tall ask for Vi, given its peers’ superior free cash generation and deeper pockets.

Our earnings estimates are broadly unchanged as the lower subscriber base is offset by higher ARPU. Stabilization of Vi’s subscriber base remains the key monitorable. We retain our Neutral rating on Vi with a revised TP of INR8, based on DCF implied ~14x Dec’26 EV/EBITDA.

Broadly in line; subscriber trend post-network rollout a key monitorable

• Vi’s overall revenue at INR109b (+4% QoQ, +2% YoY) was largely in line as the tariff hike boost was partly offset by continued subscriber declines.
• Wireless ARPU was up 7% QoQ to INR156 (+10% YoY, vs. +7%/+10% QoQ for RJio and Bharti) and was in line.
• Vi’s overall subscriber base at ~205m declined by further 5.1m QoQ (vs. 2.5m decline in 1QFY25, and higher than our estimate of -4m).
• Reported EBITDA at INR45.b (+8% QoQ/+6% YoY, vs. +8%/+13% QoQ for
• RJio and Bharti-India wireless) was ~3% above, led by lower network opex (-2% QoQ, ~6% below) and lower SG&A costs (-1% QoQ, 7% below).
• Reported EBITDA margin inched up ~160bp QoQ to 41.6% (+165bp YoY,
• +50/+145bp QoQ for RJio and Bharti-India wireless).
• Pre Ind-AS 116 EBITDA at INR23.2b, improved ~11% QoQ (+13% YoY), and was ~1% ahead. Pre Ind-AS 116 EBITDA margin expanded ~125bp QoQ to 21.2% (+200bp YoY and was ~40bp higher vs. our estimate).
• Vi’s reported losses stood at INR72b (from INR64b QoQ, and our estimate
• of INR70b), largely driven by higher net finance costs (3% above, +20% QoQ) and higher D&A (+1% QoQ, 2% above).
• Vi’s reported net debt (excluding leases but including interest accrued and not due) increased INR93b QoQ to INR2.12t on dues repayment to vendors/banks and also spectrum acquisition.
• Vi owes ~INR2.23t to GoI for deferred spectrum (~INR1.52t) and AGR dues (INR703b). Bank debt declined to modest ~INR33b (vs. INR46b QoQ, INR79b YoY).
• Vi’s capex increased to INR14b (from INR7.6b in 1Q). Management has guided for INR80b capex for 2HFY25.

Highlights from the management commentary

• Tariff hike flow through: Blended tariff hike was ~16-17%; however, segments such as Enterprise and M2M saw no increase in tariffs. Management indicated that some impact has been observed from customers sticking with earlier price points and not upgrading their recharge plans to earlier data consumption levels, which could impact the flow-through of tariff hikes by 2-3%.
• Network rollout: Vi rolled out 42k 4G sites during 2Q, which led to an increase in 4G population coverage by 22m to 1.05b by Sep’24. Management expects to reach 4G population coverage of 1.1b by Mar’25 and 1.2b by Sep’25. Further, it aims to start rolling out 5G services from 4QFY25.
• Debt raise: Management reiterated that the AGR waiver was not part of the business plan submitted to the lenders. However, post the AGR verdict, lenders are in the wait-and-watch mode. Further, Vi’s debt raise has also been delayed as lenders are seeking more clarity on the Bank Guarantee (BG) waivers. Vi remains engaged with GoI for the waiver of ~INR250b BGs pertaining to spectrum auctions before the Sep’21 reforms package.
• AGR: As per Vi’s management, the curative petition was rejected on technical grounds rather than the merits of the case. Further, Vi is engaged with GoI for support and highlighted that GoI remains supportive of three strong private players in the Indian telecom industry.

Valuation and view

• Vi continues to lose market share to peers on account of lower ARPU translation, given its inferior subscriber mix and continued subscriber declines.
• Vi plans to embark on a significant capex cycle (INR500-550b over the next 2-3 years) to bridge the network gap with peers.
• However, we believe Vi’s network investments are contingent on debt raise, which in turn is dependent on securing bank guarantee waivers and continued support from GoI (INR440b+ annual repayments to GoI from 1HFY26).
• Further, we believe gaining back subscribers would be a tall ask for Vi, given its peers’ superior free cash generation and deeper pockets.
• Our earnings estimates are broadly unchanged as the lower subscriber base is offset by higher ARPU. Stabilization of Vi’s subscriber base remains the key monitorable.
• We retain our Neutral rating on Vi with a revised TP of INR8, based on DCF implied ~14x Dec’26 EV/EBITDA.

For complete report, https://ftp.motilaloswal.com/emailer/Research/IDEA-20241115-MOSL-RU-PG014.pdf

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