Q1FY24 Review: Vodafone Idea: Walking a tightrope on near-term liquidity

17 Aug 2023 , 12:11 PM

Vi’s Q1 performance was mixed with healthy ARPU improvement, but also with a slowdown in 4G sub-add and subdued capex. As per mgmt, out of the ~Rs70bn debt repayment and spectrum payouts due in the next 12 months, there is a significant bunch-up in Q2FY24 (analysts of IIFL Capital Services estimate Rs43bn from Vi’s disclosures). In light of this, Vi has received a letter of support from one of the promoters for Rs20bn through equity, equity-linked instruments or debt. Management stated having made headway in fundraising discussions and is hopeful of tying up equity funding in the coming quarter. Analysts of IIFL Capital Services believe that significant external equity infusion may be unlikely, considering the potential significant dilution once the moratorium is lifted. Vi’s near-term cashflow squeeze may weigh on payments to Indus Towers, resulting in higher doubtful debt provision for the towerco in Q2. Analysts of IIFL Capital Services largely maintain Vi’s estimates and a TP of Rs6. Maintain REDUCE. 

Stable revenue but subdued capex: 

At Rs41.6bn, Vi’s Q1 Ebitda declined 1.3% QoQ vs Analysts of IIFL Capital Services estimate of 4%, led by revenue beat. Net debt rose from Rs2,090bn to Rs2,115bn QoQ, with leverage ratio marginally rising from 25x to 26x. In Q1, Vi’s capex was at an all-time low of Rs4.5bn. 

Earnings call takeaways: 

1) Vi has raised entry-level pack price in 12 circles (taken towards Q1-end and in Q2). 2) Q2 may see some benefit from this, though there could be some SIM consolidation. 3) In the past 1-2 months, fundraising discussions have gathered steam. 4) Vi expects equity funding to conclude in the coming quarter, and debt funding would follow. 5) Capex will remain similar to the Q1FY24 level, until fundraising is completed. 6) After the bunched-up debt repayment and spectrum payout in Q2, payout burden eases significantly (Rs5bn in Q3). 

Long-term competitiveness a tall ask: 

While Vi has managed to grow revenue QoQ in recent quarters, continued delay in fundraising has squeezed capex, limited the extent of 4G coverage expansion and prevented 5G rollout. While Vi’s payout burden eases from Q3FY24 onwards (except for a slight increase in Q4FY24), it faces a long road to competitiveness. With >Rs400bn regulatory payouts looming from FY26, Vi could end up with >70% government ownership if the govt chooses to convert principal into equity during the moratorium.