Vodafone Idea: the net debt amounts to Rs 1,927 billion

Mobile broadband sites increased from 3.4,000 to 450,000 while the total number of towers increased from 3,000 to 184,000 following the reversal of a few canceled sites.

Vodafone Idea’s (VIL) cash EBITDA at T2FY22 at Rs15.6 billion was higher than in Q1FY22, excluding one-time gains in both quarters. However, the decline in the total number of subscriptions and fixed data subscriptions is not encouraging. Although the Telecommunications Assistance Program has blocked payments to be made to the government and helped VIL meet its other obligations, it still lacks funds to incur capital expenditures in the absence of an equity infusion. Bharti Airtel and Reliance Jio incur capital expenditures to increase coverage / capacity, leaving significant catching up to be made by VIL. VIL remains hopeful of a fundraising by the end of FY22 and expects a rate hike soon, which should provide much needed liquidity for the investment. Our estimates and target price remain under review pending 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 the first quarter of l FY 22. However, even on the low basis, VIL continued to lose subs, which should cause concern as the rising ARPU requested rate has become the cash balance. This includes the loss of 0.2 million subscribers in the postpaid segment to 20 million. The gross addition of subscriptions improved to 20.1 million (compared to 15.4 million in the first quarter of fiscal 22); however, a higher churn rate restricted the net addition of subscriptions. The addition of 4G subscriptions amounted to 3.3 million to bring the total to 116.2 million. This compares to the addition of 8.1 million 4G subscribers from Bharti Airtel.

Minutes dropped from 4.8% QoQ (13.5% YoY) to 480 billion for VIL. Data usage grew 0.4% QoQ (27% year-on-year) to 5.517 billion MB. Mobile broadband sites increased from 3.4,000 to 450,000 as the total number of towers increased from 3,000 to 184,000 following the reversal of a few canceled sites.

Revenue down 12.8% yoy, but up 2.8% yoy, to Rs94 billion: our work shows that VIL’s mobile revenue fell 15% yoy from 15% yoy annual with the abolition of the IUC at Rs83 billion. Mobile revenues were impacted by the decline in the QoQ subscription base of 0.9%; ARPU increased 4.8% QoQ to Rs109. APRU benefited from an extra day, an increase in the net addition of 4G subscribers, the reversal of the impact of the foreclosure of the first quarter of fiscal 22 and the increase in pack prices basic ; and partly on the loss of low-end submarines. We believe that significant revenue growth is not possible for VIL until it begins to expand its total database (which has not increased since the merger of Vodafone and Idea) and is able to retain paying subscribers during the probable consolidation of the SIM card following the price increase.

Cash EBITDA (adjusted for Ind-AS 116) at 15.6 billion rupees: EBITDA at 38.6 billion rupees was up 4.2% qoq (down 7% qoq annual) and included a one-time benefit of 1.5 billion rupees (vs. one-time gain of 1 billion rupees) in the first quarter of fiscal 22). Adjusted for the benefit of Rs1.5 billion, the annualized cash EBITDA of T2FY22 is only Rs56.5 billion, which is rather low. However, the planned moratorium on payments to government will help VIL meet its other obligations, but reduce its EBITDA to restrict its ability to make capital expenditures to expand its data capacity. The net loss in the quarter amounted to 71 billion rupees and investments in capex were reduced to only 13 billion rupees (13.8% of revenue).

The net debt amounts to 1,927 billion rupees: it includes a deferred spectrum liability of 1,074 billion rupees, an AGR liability of 634 billion rupees and a bank loan of 228 billion rupees. Debts due over the next 12 months (by September 22) amount to 97 billion rupees. A large payment was postponed due to the four-year moratorium on government payments. The company said it is expected to 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 upcoming NTMs.

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