Vodafone Idea Ltd

Connecting India with extensive network coverage, innovative services, and trusted brand reliability.

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 Vodafone Idea Ltd

Not Rated

Connecting India with extensive network coverage, innovative services, and trusted brand reliability.

Vi's INR 180 billion FPO is poised to address two critical objectives: 1) Industry Telecomm
bridging the network coverage gap, and 2) enhancing competitiveness
to some extent. Furthermore, a notable reduction in Vi's bank debt is Issue Details
anticipated to pave the way for securing additional funding from banks. Listing BSE & NSE
While this capital injection is expected to bolster Vi's immediate Open Date 18th Apr 2024
Close Date 22nd Apr 2024
outlook, substantial market share gains vis-à-vis peers are not on the
Price Band INR 10-11
horizon. concerns remain regarding potential significant equity dilution
resulting from the conversion of government dues, potentially leading to
Face Value INR 10
over 80% government ownership. Such a scenario could limit meaningful
Market Lot 1298 shares
upside for Vi's minority investors.
Minimum Lot 1 Lot

Vi has experienced a decline of approximately 19% in market share post-

merger, attributed to inadequate network investment. Efforts are Issue Structure
Fresh Issue 100.0%
underway to rectify this by bridging the network coverage gap in 4G,
aiming to mitigate some market share losses. Issue Size (Amt) INR 18,000.0 cr
Issue Size 16,363,636,363.0
(Shares)
≤ 50%
Significant disparities in 5G coverage compared to larger competitors
QIB Share (%)
are expected to persist. Additionally, Vi's peers stand to gain more from
Non-Inst Share ≥ 15%
potential tariff increases and possess greater resources for customer (%)
acquisition, potentially hindering Vi's ability to make substantial market Retail Share (%) ≥ 35%
share gains against Bharti and R-Jio. Pre issue sh (nos) 5011.9 cr.
Post issue sh 6648.3 cr.
Vi’s proposed issue size is INR 18000 cr. The company's proposal (nos)
outlines the allocation of Net Proceeds for the following objectives: Post issue M Cap 80,505.0 cr.

1. The purchase of equipment for expanding their network Pre

Shareholding (%) Post (%)
infrastructure, which involves setting up new 4G sites, enhancing the (%)
capacity of existing 4G sites, and establishing new 5G sites will be Promoter 40.0 30.3
INR 12,750 cr. Promoter Group 8.7 6.6
2. Payment of outstanding deferred payments for spectrum to the Other 51.3 63.1
Department of Telecommunications (DoT) along with the applicable TOTAL 100 100
Goods and Services Tax (GST) will be INR 2,175 cr.
3. Utilization for general corporate purposes.

Key Financial Data (INR Cr, unless specified)

EBITDA PAT Adj EPS ROCE P/E EV/EBITD
Revenue EBITDA PAT BVPS (₹) RoE (%)
(%) (%) (₹) (%) (X) A (X)
FY21 41,952.2 16,902.1 (44,464.5) 40.3 (106.0) (8.8) (7.6) 115.7 (4.7) NA 14.4
FY22 38,515.5 16,016.1 (28,246.6) 41.6 (73.3) (5.6) (12.4) 45.6 (5.9) NA 15.8
FY23 42,177.2 16,752.8 (29,301.6) 39.7 (69.5) (5.8) (14.8) 39.4 (4.9) NA 15.9

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 Growth Strategies

Focused Investments

The Company maintains a focused investment strategy in its 17 key service areas,
which contributed significantly to revenue. Remaining committed to investment in
all service areas ensures seamless connectivity for customers. Targeted capital
expenditure drives growth, complemented by plans to deploy small cells in high-
traffic areas of major cities, enhancing the user experience.

Improve 4G coverage and Capacity

The company plans to enhance customer experience by improving its 4G coverage

and capacity. Network investments prioritize refarming existing 2G and 3G
spectrum (900 MHz and 2100 MHz) to 4G, resulting in additional 4G sites with
minimal capital expenditure. During the nine months ending December 31, 2023,
the company closed 7,900 3G sites and deployed 3,300 4G sites across India.
Additionally, in five service areas (Gujarat, Andhra Pradesh, Maharashtra, Mumbai,
and Kolkata), the company discontinued its 3G network. Following the Merger, the
company's daily data capacity surged from 25.8 PB per day as of September 30,
2018, to 82.1 PB per day as of December 31, 2023.

Deploying 5G Technologies

The company is dedicated to upgrading its network infrastructure to meet

increasing data demands and aims to provide 5G technology, covering 40% of
current revenues within 24 to 30 months. Leveraging the latest 4G technology, it's
deploying advanced 5G technologies like Massive MIMO, DSR, ORAN, and core
network cloudification for enhanced capacity, flexibility, and efficiency. Expansion
of LTE 900 and 2,100 MHz spectrum presence across 14 service areas is also
planned through dynamic spectrum refarming and additional site deployment.

Improve Average Revenue Per User and Customer Retention

The company aims to expand its 4G network in rural and semi-urban areas to boost
ARPU by providing an improved network experience. Strategic collaborations are
planned to develop new products/services and increase market share by
enhancing customer experience. With 42% of subscribers still non-4G as of
December 31, 2023, there's an opportunity to migrate them to higher-value plans
with unlimited data. Targeted campaigns incentivizing 2G handset users to
upgrade to smartphones will include cashback offers and zero-interest financing
options through collaborations with NBFCs.

Monetize Digital initiatives and collaboration opportunities

The company is monetizing digital initiatives and collaborations, experiencing user

growth in the Vi App across channels like movies, live TV, and music. This is fueled
by curated content, user events, and gaming services, including eSports
tournaments. Additional revenue streams are generated through data insights,
analytics, and value-added services. Applications like 'm-Power' aid the selling

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 process with real-time information, while 'Smart Connect' boosts retailer
engagement through cricket gamification via the 'Vi Game of Boundaries'
campaign.

Key Risks & Concerns

• The audit and review reports of the statutory auditors of the Company
include a paragraph addressing material uncertainty regarding going
concern. It is uncertain whether similar observations or remarks will be
included in the Company's financial statements or how they may impact its
financial condition.

• The Company necessitates substantial capital to support its capital

expenditure and working capital needs. Failure to secure additional capital
may adversely impact the Company's business, financial results, financial
condition, and cash flows.

• The Company has accrued considerable indebtedness and has not adhered
to certain covenants outlined in its financing agreements. Failure to fulfill
obligations, including financial and other covenants, under the Company's
debt financing arrangements may negatively impact its business, financial
results, financial condition, and cash flows.

• As per the implementation agreement between the Company and

Vodafone India's promoters during the Merger, there's a mechanism for
settling liabilities, including AGR dues, by June 2025. Failure to fulfill AGR
obligations could impact the Company's receipt of payments from the
Vodafone Group under the settlement mechanism.

• High churn in India's mobile telecommunications industry poses a

challenge, and the Company cannot guarantee retention of all existing
subscribers or successful acquisition of new ones. Such fluctuations may
adversely impact the Company's business and operational results.

• The Supreme Court of India has issued a judgment granting Telecom

Service Providers, including the Company, a 10-year period to settle AGR
dues in annual installments. Non-compliance with these directives may
have adverse effects on the Company's business, operational results, and
competitiveness.

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 Issue Structure and Offer Details

The proposed issue size of Vodafone Idea Ltd FPO is INR 18,000.00 cr fresh issue
and the price band for the issue is in the range of INR 10-11 and the bid lot is
1298shares and multiples thereof.

Issue Structure

Investor Category Allocation No. of shares (cr.)

QIB Not more than 50% of the Net 818.18
Issue
NIB Not less than 15% of the Net 490.90
Issue
Retail Not less than 35% of the Net 572.72
Issue

Number of shares based on a higher price band of INR 11

Source: Company Reports

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 Company’s financial summary and analysis
Fig in INR Cr (unless specified) FY21 FY22 FY23 Fig in INR Cr (unless specified) FY21 FY22 FY23
Income Statement Per share data & Yields
Revenue 41,952.2 38,515.5 42,177.2 Adjusted EPS (INR) (8.8) (5.6) (5.8)
YoY Growth (%) (6.7) (8.2) 9.5 Adjusted Cash EPS (INR) (4.1) (0.9) (1.2)
Raw Material Cost 3.0 7.0 7.8 Adjusted BVPS (INR) (7.6) (12.4) (14.8)
RM Cost to Sales (%) 0.0 0.0 0.0 Adjusted CFO per share (INR) 3.1 3.5 3.8
Employee Cost 2,030.0 1,735.1 1,866.3 CFO Yield (%) 23.7 26.4 28.6
Employee Cost to Sales (%) 4.8 4.5 4.4 Adjusted FCF per share (INR) 5.8 6.5 7.7
Other Expenses 23,017.1 20,757.3 23,550.3 FCF Yield (%) 44.4 49.3 58.2
Other Exp to Sales (%) 54.9 53.9 55.8
EBITDA 16,902.1 16,016.1 16,752.8 Solvency Ratio (X)
Margin (%) 40.3 41.6 39.7 Total Debt to Equity (4.7) (3.1) (2.7)
YoY Growth (%) 14.8 (5.2) 4.6 Net Debt to Equity (4.7) (3.0) (2.7)
Depreciation & Amortization 23,638.5 23,584.3 23,049.7 Net Debt to EBITDA 10.5 11.7 12.0
EBIT (6,736.4) (7,568.2) (6,296.9)
Margin (%) (16.1) (19.6) (14.9) Return Ratios (%)
YoY Growth (%) (30.1) 12.3 (16.8) Return on Equity 115.7 45.6 39.4
Other Income 413.1 183.3 384.6 Return on Capital Employed (4.7) (5.9) (4.9)
Bill discounting & other charges 18,193.4 21,014.7 23,363.4 Return on Invested Capital (4.8) (6.0) (5.0)
Fin Charges Coverage (X) (0.4) (0.4) (0.3)
Exceptional Item (19,968.1) 164.3 (22.4) Working Capital Ratios
PBT (44,484.8) (28,235.3) (29,298.1) Payable Days (Nos) 116 125 117
Margin (%) (106.0) (73.3) (69.5) Inventory Days (Nos) 0 0 0
YoY Growth (%) (28.4) (36.5) 3.8 Receivable Days (Nos) 22 23 19
Tax Expense (20.3) 11.3 3.5 Net Working Capital Days (Nos) -94 -102 -98
Tax Rate (%) 0.0 (0.0) (0.0) Net Working Capital to Sales (%) (25.7) (27.8) (26.9)
PAT (44,464.5) (28,246.6) (29,301.6)
Margin (%) (106.0) (73.3) (69.5) Valuation (X)
YoY Growth (%) (40.1) (36.5) 3.7 P/E (1.5) (2.3) (2.3)
Min Int/Sh of Assoc 231.4 1.2 0.5 P/BV (1.7) (1.1) (0.9)
Net Profit (44,233.1) (28,245.4) (29,301.1) EV/EBITDA 14.4 15.8 15.9
Margin (%) (105.4) (73.3) (69.5) EV/Sales 5.8 6.6 6.3
YoY Growth (%) (40.1) (36.1) 3.7
Cash Flow Statement
Balance Sheet PBT (44,484.8) (28,235.3) (29,298.1)
Share Capital 28,735.4 32,118.8 48,679.7 Adjustments 58,545.7 45,719.6 47,517.3
Total Reserves (66,963.4) (94,083.6) (1,23,038.8) Change in Working Capital 1,558.5 (86.0) 653.0
Shareholders Fund (38,228.0) (61,964.8) (74,359.1) Less: Tax Paid 20.3 (11.3) (3.5)
Long Term Borrowings 1,57,415.5 1,75,950.8 1,89,290.1 Cash Flow from Operations 15,639.7 17,387.0 18,868.7
Deferred Tax Assets / Liabilities (0.1) (6.0) (13.5) Net Capital Expenditure (4,531.5) (5,888.2) (3,856.5)
Other Long Term Liabilities 17,720.0 18,785.6 32,159.7 Change in Investments 5,606.6 157.9 (1,557.1)
Long Term Trade Payables 126.8 85.2 105.8 Cash Flow from Investing 1,075.1 (5,730.3) (5,413.6)
Long Term Provisions 41.6 38.4 23.5 Change in Borrowings 1,462.0 5,961.2 8,251.9
Total Liabilities 1,37,075.8 1,32,889.2 1,47,206.5 Less: Finance Cost (18,193.4) (21,014.7) (23,363.4)
Net Block 1,67,490.4 1,56,818.6 1,56,255.2 Proceeds from Equity 0.0 4,499.7 432.0
Capital Work in Progress 599.6 323.9 300.3 Buyback of Shares 0.0 0.0 0.0
Intangible assets under development 6.3 40.4 17,576.1 Dividend Paid 0.0 0.0 0.0
Non Current Investments 4.1 5.3 5.8 Cash flow from Financing (16,731.4) (10,553.8) (14,679.5)
Long Term Loans & Advances 13,690.5 10,694.6 10,049.5 Net Cash Flow (16.6) 1,102.9 (1,224.4)
Other Non Current Assets 7,587.9 9,304.8 9,139.4 Forex Effect 0.0 0.0 0.0
Net Current Assets (52,303.0) (44,298.4) (46,119.8) Opening Balance of Cash 366.9 350.3 1,453.2
Total Assets 1,37,075.8 1,32,889.2 1,47,206.5 Closing Balance of Cash 350.3 1,453.2 228.8

Source: Ventura Research

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