Sell Vodafone Idea, target price Rs 8: ICICI Securities

ICICI Securities has downgraded Vodafone Idea to sell from a buy rating with a target price of Rs 8. The share price moved down by -0.99 per cent from its previous close of Rs 10.15. The stock’s last traded price is Rs 10.05.

Voda Idea’s capex stood at Rs 18 billion (15.5 per cent of revenues), which was significantly lower due to lockdown and a likely tight cash flow situation. The brokerage believes lower capex will hurt the company’s market share in coming quarters. Net debt rose by Rs 95 billion to Rs1,125 billion on payment of AGR dues of Rs 68 billion and EMI for deferred spectrum liability. Cash balance was Rs 25 billion in Q4FY20 (Rs 128 billion in Q3FY20)


Investment Rationale

Vodafone Idea’s Q4FY20 adjusted cash EBITDA came in line with the brokerage estimates at Rs 17 billion. ARPU rose 11 per cent quarter on quarter to Rs 121 on tariff hike and subscriber base clean-up. Unlike Bharti Airtel, the brokerage did not see ARPU rise from 4G net additions for Voda Idea. In fact, ICICI Securities is concerned about the dip in mobile broadband subscribers, which means Voda Idea is unable to even retain subscribers who are converting from 3G to 4G.

According to the brokerage, 4G subscribers would be critical to get maximum benefit of tariff hikes, as it believes the highest rise in future tariffs will be on prepaid 4G plans. Capex intensity deceleration will add to pain for Voda Idea.

The brokerage has increased its EBITDA estimates by 34.3 per cent / 32.8 per cent for FY21E / FY22E on adoption of Ind-AS 116, but cut revenues by 5.2 per cent and 3.4 per cent respectively. It has raised the target price to Rs 8 (from Rs 6) as it raised FY22E EBITDA multiple to 11 times (from 9.3 times) in line with Bharti. The stock has been downgraded to sell from buy.

Change in Estimates


Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 11735.60 crore, up 5.83 per cent from last quarter sales of Rs 11089.40 crore and down -.04 per cent from last year's same quarter sales of Rs 11740.60 crore. The company reported net profit after tax of Rs -11711.30 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 72.05 per cent stake in the company as of March 31, 2020, while FIIs held 8.82 per cent, DIIs 5.86 and public and others 13.12 per cent.