We reiterate that a quick market repair is the only way for survival of Vodafone Idea. The Vodafone-Idea combine is the weakest private telco, notwithstanding recent fund raising providing a temporary relief for next four to five quarters. Continued net sub loss (reflection of weak sub quality) and modest 4G sub addition clearly reflects the relative weak position. Our EBITDA estimates for FY20 and FY21 have been cut by 24% and 23%, respectively. We maintain REDUCE with DCF based target price of Rs 6/share. We do not incorporate Ind-AS 116 given lack of balance sheet data.
Leveraged recovery play. Vodafone Idea (VIL) 4QFY19 results were ahead of estimates. This was primarily led by inevitable synergy benefits post integration. That said, operating performance was feeble with flat revenues QoQ and modest data subscribers additions. BUY with TP of Rs 19 (10x FY21E EBITDA).
We value the stock at INR40, 12x EV/EBITDA on EBITDA of INR126b in FY21. Our estimates factor in an ARPU increase of a meager 3% (which too will come in FY21). The rights issue will have 70% post issue equity dilution, but our TP remains unchanged as we believe that the impact of the steep dilution could be offset in the long term by the huge growth opportunity if the company manages the current liquidity situation well. Our positive stance is mainly premised on the healthy promoter backing and the strong operating leverage opportunity from any ARPU increase. Maintain Buy.
Despite the huge fund raise and the estimated EBITDA increase to INR126b by FY21 (from INR45.5b currently – 3QFY19 annualized run-rate), Vodafone Idea may have only eight quarters of funding, with the net debt-to-EBITDA ratio likely to remain at a steep 8.4x. This highlights Vodafone Idea’s desperate need for ARPU accretion over the next two years to survive without incremental funding, which could be seen as an advantage by competitors. However, once the network and price arbitrage is reduced, the incremental market share shift should be arrested. We value the stock at INR40, 12x EV/EBITDA on EBITDA of INR126b in FY21. Our estimates factor in an ARPU increase of meager 3% (which too will come in FY21). Our positive stance is mainly premised on the healthy promoter backing and the strong operating leverage opportunity from any ARPU increase. Maintain Buy.