Fall in earnings continues wants instant liquidity help: Adjusted EBITDA (excluding one-offs on pre Ind AS 116) stood at Rs 12.8billion v/s Rs 17.1billion QoQ. This was attributed to the sharp subscriber churn due to the Covid-led lockdown and fall in ARPUs. With EBITDA (pre-Ind AS 116) of Rs 38.5billion in 2HFY22E, it will be difficult to invest in developing its network and service upcoming repayments of: a) Rs 64.7billion NCDs in FY22, b) Rs 82billion deferred spectrum payment, and c) AGR installment. A capital raise or government relief package remains important to provide instant liquidity help to service the ballooning net debt of Rs 1,907billion (such as AGR liabilities). We preserve our ‘neutral’ rating.
Highlights from the management commentary: VIL is focusing on investments in 16 priority circles, which contribute 94% of income. Focus on higher ARPU subscribers: It aims to scale up greater ARPU subscriber programmes in partnership with OEMs and NBFCs for 4G devices.
Tax refund: It received Rs 10billion in the kind of tax refunds in 1QFY22. The balance receivable now stands at Rs 58billion. Tariff modify: The organization elevated tariffs on entry-level corporate postpaid/prepaid plans to Rs 299/Rs 79 from Rs 199/Rs 49. It is producing positive money from operations to meet its repayments and capex needs. It is engaging with investors for new funding, and is conducting parallel discussions with bondholders for refinancing.
Valuation and view: The fall in subscribers and subsequently income is disproportionately hurting EBITDA due to the higher fixed price nature of the enterprise, with inflationary price escalating. This is creating any tariff hike also challenging to fill the gap of money needs. VIL’s weak liquidity position may perhaps force it to rationalise network investments, as is evident from minimizing capex intensity and intensifying subscriber churn. The management stated it is in discussion with prospective investors for the stated `250billion fund raise, but the timeline remains unclear.
A capital raise or government relief package remains important to provide instant liquidity help to service the ballooning net debt of Rs 1,907billion (such as AGR liabilities). With EBITDA (pre-Ind AS 116) of Rs 38.5billion in 2HFY22E, it will be difficult to invest in developing its network and service upcoming repayments of: a) Rs 64.7billion NCDs in FY22, b) Rs 82billion deferred spectrum payment, and c) AGR installment. The only silver lining, as the management indicated, is the recovery in its subscriber base post the lifting of the lockdown in Jun’21.
The substantial quantity of money expected to service its debt, leaves restricted upside chance for equity holders, in spite of the higher operating leverage chance from any supply of ARPU enhance. The present low EBITDA would make it a challenge to service debt without the need of external fund infusion. Assuming 9x EV/EBITDA, with Rs 1,907billion net debt (excluding lease liability and AGR debt), it leaves restricted chance for equity shareholders. We preserve our ‘neutral’ rating.