Vodafone Idea Ltd. share price target

Consolidated revenues came in lower at | 6509.6 crore (down 12.8% QoQ) vs. our estimate of | 6733.3 crore. The miss was due to the sharper impact of IUC cut. On the overall revenue front, the IUC cut had an impact of | 830 crore during the quarter. The resultant ARPU was at | 114 (down 13.6% during the quarter) vs. our expectation of | 120. Out of total ARPU erosion of | 18 during the quarter on a QoQ basis, | 14.5 was attributable to IUC cut while the remaining decline was owing to down trading. The voice volume usage continued to be...

We downgrade Idea to Neutral with TP of Rs 96 @ 8.5x Dec-19 EV/E (vs. Rs 120 @ 9x). Our TP is based on pro-forma financials of the merged entities. Ideas 3QFY18 numbers were weak as expected. IUC rate cut and subscribers downgrade to lower ARPU bundled plans impacted performance. Ideas high leverage, lower capex, lack of VoLTE readiness and integration hiccups puts Idea on weak footing in near term. Management refrained from competing aggressively in the tariff battle amongst Jio & Bharti. It would focus on voice only customers with limited data consumption till sanity prevails on pricing (a tough call?). We believe this may impact Ideas subscriber share and revenues.

IDEA's revenue declined 13% QoQ (-25% YoY) to INR65.1b (2% miss), while EBITDA fell 19% QoQ to INR12.2b. The impact on revenue/EBITDA on account of IUC rate cut was 11%/15%; the balance was due to ARPU down trading. However, lower cost (-11% QoQ) helped restrict the impact on margins (-130bp QoQ to 18.8%). Net loss widened to INR12.8b (est. of INR13.9b) from INR11.1b in the previous quarter. Bucking the trend of 2QFY18, gross subscribers grew 3% QoQ to 188.5m. Despite this, intense competition in the sector led to blended ARPU decline of 14% QoQ (11% impact on IUC). Voice/data ARPU dropped 5%/10% QoQ to INR85/INR95 due to a decline of 24%/26% in RPM/ARMB, offsetting traffic growth of 11%/30% QoQ.

Idea Cellular (IDEA) announced that the board has approved raising INR32.5bvia issuance of preferential shares to the Aditya Birla Group (ABG) atINR99.5/share, implying 9% equity dilution. The board is also considering raising additional INR35b, implying further 9% dilution. In our view, equity dilution will take away potential gains from existing shareholders, as the telecom market is likely to bottom out in the near term.At the same time, we believe that fund-raising should provide IDEA with much-needed liquidity to ramp-up network and protect market share against its deep-pocketed peers, providing an edge in the current hyper-competitive market. IDEA's FY18 net debt-to-EBITDA is estimated at a steep 9.3x. However, the combined net debt post the merger with Vodafone could drop by INR225b toINR871b, with net debt-to-EBITDA declining to 4.2x in FY20 and ~3x by FY21.

Our positive thesis on Idea is premised on the proposed merger with Vodafone, and delivery on guided synergies of Rs 140bn, with ~60% in opex from the fifth year of merged operations. BUY with a TP of Rs 120. Our TP is based on pro-forma financials of the merged entities, and factors in modest synergies. Ideas 2QFY18 numbers came in weak, as expected. Sequentially, revenue declined 8.6%, EBITDA 19.9%, subscribers 3.5% and ARPU 6.4%. Yet, healthy growth in data usage and strict cost control measures were key positives.

Revenues were lower at | 7465.5 crore (down 8.6% QoQ) vs. our estimate of | 7682.7 crore. The miss was due to a seasonally weak quarter, GST impact and industrywide competitive pressures. Voice revenues came in at | 5586.7 crore, down 8.3% QoQ and lower than our estimates of | 5665.9 crore. While total voice minutes were up 1.7% QoQ to 255.0 billion minutes (estimated: 250.3 billion minutes), realisations slipped 10.1% QoQ to 21.9 paisa (lower than estimated 22.6 paisa). Data revenues declined 11.8% QoQ to | 1201.8 crore, hit...

each in revenue and EBITDA. IDEA's net loss widened to INR11.1b (est. of INR17.8b) from INR8.1b in 2QFY17, led by lower EBITDA and higher D&A.; ARPU under pressure in voice, data: ARPU remained subdued, with an 8% decline to INR132 due to downtrading. Voice ARPU fell by 7% QoQ to INR100 and data ARPU by 12% QoQ to INR105. Notably, overall subscribers fell 4% QoQ to 182.4m the steepest in four quarters, led by pressure from RJio launch. Subscriber churn could severely hurt recovery, going forward. Expect recovery from FY19: IDEA's change in strategy with data-heavy...

Revenue fell by 6.37% to Rs. 8109.1 Cr in Q4FY17 when compared to the previous quarter

ICICI Securities Ltd | Retail Equity Research Revenues were lower at | 8126.1 crore vs. our estimate of | 8314.5 crore owing to data and non data VAS revenues being lower than expected, impacted by a steeper decline in tariffs that were at 11.5 paisa, down 28% QoQ vs. our estimate of 12.8 paisa, hence leading to data revenues of | 1457.0 crore (down 15% QoQ). Though data volumes grew 16.7% QoQ to 127 billion MB, higher than our estimates of 117.7 MB, growth stayed lower than Airtel, which...

ICICI Securities Ltd | Retail Equity Research Idea has announced merger of Vodafone India (excluding 42% stake in Indus) with itself, resulting in a combined entity with equal rights. The combined entity will be the largest Indian telecom operator with a subscriber base of 400 million and subscriber, revenue market share of 35.1%, 40.7%, respectively (as on December, 2016). The deal is expected...