Vodafone Idea Ltd (VIL) reported a 1% increase in revenue for 1QFY24, reaching `106.6 billion. This growth was achieved despite a 2% decline in subscribers, as it was offset by a 3% increase in average revenue per user (ARPU). The reported revenues exceeded our expectations by 1%, primarily due to higher-than-anticipated ARPU. The end of period (EoP) subscribers were consistent with our estimate.
The Blended ARPU rose significantly by 3% q-o-q, reaching Rs 139, which was above our projected value of Rs 137. This growth was driven by the conversion of 2G consumers to 4G and the adoption of higher tariff plans by subscribers. However, the EoP subscribers experienced a decline of 4.5 million, marking an acceleration in the rate of decline compared to the 2.7 million drop in Q4FY23. The reported net loss amounted to -Rs 78.4 billion, a wider loss than the – Rs 64.2 billion reported in 4QFY23. Net debt grew by Rs 25 billion q-q, reaching Rs 2.12 trillion. This increase was primarily attributed to a rise of `30 billion in deferred payment liabilities.
VIL believes that these plans have not significantly affected the market, and subscriber behaviour within VIL’s network remains relatively unaffected by this development. (iv) Vi Business, a division of VIL, has introduced Hybrid SD-WAN (Software-Defined Wide Area Network). This technology aims to enhance and simplify network infrastructure for enterprises. It comes with an emphasis on improved security features, offering an appealing proposition to enterprises seeking optimised networking solutions.
We have a Reduce rating on VIL with a TP of Rs 5 given the ongoing uncertainty on the path to value creation and likely further large equity dilution from equity conversion on the deferment of AGR and spectrum liabilities of `920bn. We believe VIL will find it difficult to reverse the loss of subscribers, as it will lag Bharti and Jio in terms of pan-India network capabilities (4G/5G) and service offerings. VIL’s constraints will lead to a significantly slower 5G rollout versus peers, which should lead to further loss of subscribers, in our view .