Broker’s call: Vodafone Idea (Sell)

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Target: ₹10

CMP: ₹14.36

Vodafone Idea (Idea) reported inline performance for the quarter. Both, sequential revenue growth and EBITDA margin were as per expectation. It reported sequential decline in revenue of 0.4 per cent q-o-q, however, ARPU increased by 2 per cent q-o-q to ₹ 145/month; while, subscriber base declined by 4.6 million q-o-q to 215.2 million.

4G addition was better than expected for the quarter at 0.9mn QoQ. There was sequential improvement in EBITDA margin (up 80 bps QoQ) led by decrease in roaming cost.

Net debt increased to ₹2.15 trillion in Q3FY24 vs ₹2.13 trillion as of Q2FY24. It continues to lose subscribers (mainly in 2G segment) and that adversely impacts revenue growth. The addition of 4G subscribers remains modest. It needs capital infusion for augmenting the capital expenditure to catch up with peers in terms of 4G coverage/capacity. It has still not announced any timeline with regard to 5G implementation.

We expect that 2G to 4G migration would continue to drive ARPU growth. We expect EBITDA Margin to improve in near term led by continued focus on operational efficiency. We estimate revenue CAGR of 3.6 per cent over FY23‐26 with average EBITDA margin of 41.8%.

We maintain our Sell rating on the stock with target price of ₹10/share based on EV/EBITDA of 13.1x on FY26E.