Vodafone Idea share price: ICICI Securities maintains sell rating with target price of Rs 5

Vodafone Idea’s Q3 FY21 cash EBITDA at Rs 21 bn benefited from amortisation of subscriber acquisition cost (SAC, Rs 3.3 bn) over life-time of subs which was earlier expensed in P&L. VIL is showing some improving trends with lower subs loss, better gross adds, higher 4G net add and rise in data usage, but it is still not enough.

With AGR case behind, Vodafone Idea will need to bounce back stronger, with limited resources, to remain a going concern. Capex for Vodafone Idea is contingent on fund raising and any delay may hurt it further. It requires tariff hike soon to boost operational cash flow. ICICI Securities believes Vodafone Idea may initiate tariff hikes, which should be followed by competition (same as Dec’19). ICICI Securities maintains sell rating with target price of Rs 5.

Vodafone Revenues up 1% QoQ to Rs 109 bn:

Vodafone Idea’s mobile revenue was stable QoQ and was impacted from subs loss; total revenue growth was driven by better performance in the enterprise segment. Mobile revenue was helped by ARPU rise of 1.7% QoQ to Rs 121 on higher 4G net add. It lost 0.4 mn post-paid subs to 20.8 mn which is offsetting some ARPU benefits. Minute continues to decline, down 1.5% QoQ to 547 bn, while access charges rose 4.6% QoQ implying lower EBITDA contribution from IUC.

Cash EBITDA (adjusted for Ind-AS 116) at Rs 21 bn:

Vodafone Idea’s EBITDA stood at Rs 43 bn was up 3.2% QoQ despite Rs 3 bn one-off gain in base on account of change in subscriber acquisition cost which is now amortised over life-time of sub which has lowered the cost by Rs 3.3 bn. Adjusted for Ind-AS 116, EBITDA was Rs 21 bn (up 9.5% QoQ on comparable basis). Vodafone Idea has already achieved Rs 20 bn of annualised savings out of the guided Rs 40 bn additional synergy benefits. Cost efficiency has driven a 32% QoQ dip in admin cost. It had exceptional gain from stake sale in Indus Towers. Net loss stood at Rs 45 bn.

Vodafone Idea’s Net debt including AGR dues at Rs 1747 bn:

Vodafone Idea’s capex is still low at Rs 10 bn likely due to cash crunch. Net debt rose by Rs26bn, despite cash flow from Indus stake sale at Rs 37.6 bn, to Rs 1171 bn on advance paid to Indus Tower of Rs24bn, and other working capital changes. And including AGR dues of Rs 576 bn, total net debt is Rs 1747 bn, which is unsustainable. It is yet to announce fund infusion and equity infusion is critical as it will allow the company to invest in the network and help bounce