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MOSL: TELECOM-Vodafone India’s EBITDA in a downward spiral; IUC cut impacts revenue by 11%

Telecom: Vodafone India’s EBITDA in a downward spiral; IUC cut impacts revenue by 11%

 

• IUC cut dampens revenue: Vodafone India’s wireless revenue declined 13% QoQ (-25% YoY) to INR74.5b – of which ~11% can be attributed to IUC rate cut – in line with Bharti/Idea’s revenue decline of 12/13% QoQ. EBITDA declined 19% QoQ (v/s Bharti/Idea’s EBITDA decline of 17/19%) to INR16.3b. However, savings in operating cost provided some support to EBITDA. Margin contracted 180bp QoQ to 20.1% (Bharti/Idea margins at 32.6/18.8%). ARPU declined 13% QoQ (-28% YoY) to INR114 (Bharti/Idea’s ARPU at INR123/113).
• Subscriber growth – a positive surprise: Bucking the trend of the previous quarter, the subscriber base grew 2.5% QoQ to 212.5m, gaining some share from smaller operators. Furthermore, continuous data burst on the back of unlimited price plans led to a sharp 48% QoQ increase in data volumes to 567b MBs (monthly 189b MBs data traffic, i.e., 13% of RJio’s 3QFY18 numbers).

4QFY18 to witness a bumpy ride: Management indicated that revenue in 4QFY18 could continue to be under pressure, as the recent price plan revision by RJio (during Republic Day) in reaction to increased competition from the market leader has fuelled a price war. The cut in international IUC rates to INR0.15/min would squeeze the margin by ~200bp, according to management. The only key silver lining is the swift progress on the merger (only DoT approval pending now), as we expect EBITDA synergies for the merged entity.