'Network integration key to Voda-Idea strength for June 2020 target'
For Vodafone-Idea, the recovery hinges on network integration, cash position say analysts and the telco is well placed to realize full OpEx synergy of Rs 8,400 crore by June 2020 says its management.
Motilal Oswal in a recent note said subscriber churn continues to hurt Vodafone Idea.
For the British Indian company , 1QFY20 revenue declined 4.3 per cent QoQ to Rs 11,270 crore, led by continuing high subscriber churn (lost 14 million subs QoQ).
However, it was partly offset by a rise in ARPU of 4 per cent QoQ to Rs 108 due to Minimum Recharge Plans. On pre Ind-AS 116 basis, EBITDA declined 31 per cent QoQ to Rs 1,240 (v/s reported EBITDA of Rs 3,650 crore), with 420bp drop in margins as synergy gains were unable to insulate the decline in revenue. Adjusted loss on pre Ind-AS 116 basis stood at Rs 4,120 crore v/s Rs 4,060 crore QoQ. Broadband subscribers remained flat QoQ at 110.5 million, while 4G subs addition remained dismal at 4.1 million.
On a Concall Q1 post result highlights emerged as -- Of the total Rs 8,000 crore synergy to be realized by Jun 2020, 70 per cent target synergies have been realized by June 2019. The management Reiterated network integration across circles and 95 per cent of 4G population in high potential districts by FY20. VIL's External debt of Rs 4,100 crore is maturing in FY20 and Rs 4,200 debt in FY21.
"As a result of the integration exercise, we have removed surplus equipment from nearly 38,000 sites, of the total 73,000 co-located sites further benefiting our cost base. As of June end, we're pleased to announce that we've achieved 70% of our target synergies. Long story short, we are moving at a great pace and are well placed to realize full OpEx synergy of INR 84 billion by June 2020. This was about the strategic pillar 1," the management said in its concall in July .
Motilal Oswal said the telcos has Sufficient cash to operate for the next 4-5 quarters. "The current net debt/cash position stands at Rs 99,300 crore -- Rs 21,200 crore and an additional Rs 10,000-Rs 12,000 could be raised through monetization of the Bharti Infratel stake sale and fiber assets, and another Rs 5,000 crore through cash flow from operation (CFO).
"Against this, VIL has estimated annual cash requirement of Rs 28000 crore (capex of Rs 12,000 crore, debt repayment of Rs 4,200 crore and interest cost of Rs 12000 crore) over the next two fiscals. Thus, the current cash plus additional monetization opportunity could optimistically suffice for the next 4-5 quarters.
"The efforts towards network integration, capacity expansion and merger synergies has been plausible and is expected to boost 4G coverage to 90 per cent by June 2020 -- at par with competition. Until then, the subscriber churn coupled with cash flow crunch could risk the operating capability of the company."
VIL's key worry is the debt trap with net debt to EBITDA of over 15x, thus, any fund raise would be utilized to service debts. The positives are strong promoter backing and operating leverage opportunity from any ARPU increase. But, it needs to manage the cashflow until its network stabilizes by June 2020.
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