EUR 120.00 For Business Accounts Only

MOSL: VODAFONE IDEA (Buy)-Mammoth task ahead

Vodafone Idea: Mammoth task ahead

(IDEA IN, Mkt Cap USD3.9b, CMP INR32, TP INR40, 25% Upside, Buy)

 

• Merger synergies drive margins: Reversal in EBITDA trend led Vodafone Idea to witness growth for the first time (excl. one-offs) since the launch of RJio. LTL growth came in at 16% QoQ to INR11.4b (12% miss), led by synergy gains, despite LTL revenue decline of 2.2% QoQ to INR117.6b (in-line).
• (for exceptional item and DTA impact) net loss stood at INR62b (v/s INR44.5b in 2Q). A silver lining was the monthly exit revenue (Dec'18 and Jan'19) experiencing growth.
• Concall highlights: (1) Combined FY19-20E capex guidance remains unchanged at INR270b (ex-redeployment). (2) Expect rights issue to get completed by early 1QFY20. (3) Expect network integration across all circles to get completed by Jun'20.
• High cash burn worsening liquidity position: With estimated run-rate of a healthy INR2.5-3b quarterly synergy accretion in FY20, we expect EBITDA at INR81b. However, given the bloated net debt of INR1,147b and estimated cash burn (EBITDA minus capex and interest) of INR50b on quarterly basis, the company's INR89b cash balance would barely suffice two quarters of liquidity. If plans of INR250b rights issue and monetization of 11.15% Indus stake sale (INR49.5b implied value) fructify, it could provide the much needed respite for additional 5-6 quarters. But, it would reduce the possibility of ARPU increase in the near term, as competition may try to gain market share.