Vodafone Idea: Net Debt Accumulates at Rs 1,927 Billion

Data usage increased 0.4% quarter-on-quarter (27% year-on-year) to 5.517 billion MB. Mobile broadband sites increased from 3.4,000 to 450,000, while the number total spins increased from 3,000 to 184,000 with the cancellation of a few canceled venues.

Vodafone Idea (VIL) cash EBITDA in Q2FY22, at Rs 15.6 billion, was higher than in Q1FY22, excluding one-time gains in both quarters. However, the drop in total subs and flat data subs are not encouraging. Although the telecommunications relief package has blocked payments to the government and helped VIL meet its other obligations, it still lacks funds to incur capital expenditures in the absence of a capital injection. Bharti Airtel and Reliance Jio are incurring investments to increase coverage/capacity, leaving significant catch up for VIL. VIL remains hopeful of fundraising by the end of FY22 and expects the rate hike to come soon, which should provide much-needed liquidity for the investment. Our estimates and target price remain under review as we await clarification on VIL’s strategy.

The net addition of 4G subscribers was 3.3 million, bringing the total to 116 million: the net loss of VIL subscribers in the quarter was 2 million, well below the 12 million lost in Q1FY22. However, even on the low base, VIL continued to lose subs, which should be cause for concern given the ARPU request rate rising to break even. This includes the loss of 0.2 million subscribers in the postpaid segment to 20 million. Gross subscriber additions improved to 20.1 million (from 15.4 million in Q1FY22); however, higher churn limited the net addition of subscribers. The addition of 4G subscribers was 3.3 million to bring the total to 116.2 million. This compares to Bharti Airtel’s addition of 8.1 million 4G subscribers.

Minutes were down 4.8% quarter-on-quarter (13.5% year-on-year) to 480 billion for VIL. Data usage increased 0.4% quarter-on-quarter (27% year-on-year) to 5.517 billion MB. Mobile broadband sites increased from 3.4,000 to 450,000, while the number total spins increased from 3,000 to 184,000 with the cancellation of a few canceled venues.

Revenue down 12.8% YoY, but up 2.8% YoQ, to Rs 94 billion: Our work shows that VIL’s mobile revenue decreased 01.8% YoY by 15% year-on-year following the abolition of the IUC at Rs 83 billion. Mobile revenues were impacted by the decline in the subscription base of 0.9% compared to the quarter; ARPU increased by 4.8% QoQ to Rs 109. APRU benefited from an extra day, higher net addition of 4G subscribers, reversal of the impact of lock in T1FY22 and base pack price hikes; and partly on the loss of low-end submarines. We believe major revenue growth is not possible for VIL until it begins to expand its total data subscription base (which has not grown since the merger of Vodafone and Idea), and that it is able to maintain paid subscriptions during the probable consolidation of the SIM card during the price increase.

Cash EBITDA (adjusted for Ind-AS 116) at 15.6 billion rupees: EBITDA at 38.6 billion rupees increased by 4.2% quarter on quarter (down 7% year on year) and included a one-time benefit of Rs 1.5 billion (compared to a one-time gain of Rs 1 billion in Q1FY22). Adjusted for the 1.5 billion rupees benefit, the Q2FY22 annualized cash EBITDA is only 56.5 billion rupees, which is rather low. However, the planned moratorium on government payments will help VIL meet its other obligations, but will reduce EBITDA to limit its ability to incur capital expenditures for data capacity expansion. Net loss in the quarter amounted to 71 billion rupees and capital investments were reduced to only 13 billion rupees (13.8% of revenue).

Net debt stands at 1,927 billion rupees: it comprises deferred spectrum liability of 1,074 billion rupees, AGR liability of 634 billion rupees and bank loan of 228 billion rupees. Debts due over the next 12 months (by September 22) amount to Rs 97 billion. A major payment was deferred due to the four-year moratorium on government payments. The company said it should be able to raise capital by the end of FY22 and is also in negotiations with banks to increase limits to meet payment obligations, including future NTMs.

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Ann J. Cox