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    Reduce Vodafone IDEA, target price Rs 9: Edelweiss

    Synopsis

    Watch out for traction in 4G subscriber addition and non-core asset monetisation, says the brokerage.


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    Edelweiss has given a reduce rating to Vodafone IDEA with a target price of Rs 9. The share price moved down by -0.49 per cent from its previous close of Rs 10.15. The stock’s last traded price is Rs 10.

    Vodafone Idea logged an 11 per cent quarter on quarter surge in Q4FY20 ARPU—driving the outperformance on revenue—while realisation of synergies reinforced the EBITDA beat. The brokerage says the hike in ARPU is heartening, but stalling 4G subscriber addition momentum does not inspire confidence on sustainability of ARPU improvement. On the contrary, meagre cash on the books -- Rs 24.8 billion -- and lack of financing options put liquidity into question.

    The brokerage believes an early resolution of the AGR issue is critical for the company to raise capital by monetising non-core assets, considering it continues to lose market share. The company’s 4G subscriber addition dwindled to 1.4 million, from 8.3 million in Q3FY20, taking the total 4G subscriber base to 105 million. The brokerage believes that traction in the 4G subscriber base is crucial for retaining revenue market share.

    Investment Rationale


    The brokerage says Vodafone-Idea is in a classical ‘pushed to the brink situation’. An early resolution of AGR dues and a sharper-than-expected tariff hike can script a heroic comeback. That said, given its dependence on external circumstances and limited control thereof, the brokerage maintains a reduce rating with a target price of Rs 9 up from Rs 5, as it increases the FY22E EBITDA by 8 per cent factoring in higher synergy realisation. It urges one to watch out for traction in 4G subscriber addition and non-core asset monetisation.

    The stock is trading at 8.5 times FY21E EV/EBITDA.

    Voda-IDEA-EdelweissJuly22020

    Financials

    For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 11735.60 crore, up 5.83 per cent from last quarter sales of Rs 11089.40 crore and down -.04 per cent from last year's same quarter sales of Rs 11740.60 crore. The company reported net profit after tax of Rs -11711.30 crore in the latest quarter.

    Promoter/FII Holdings

    Promoters held 72.05 per cent stake in the company as of March 31, 2020, while FIIs held 8.82 per cent, DIIs 5.86 and public and others 13.12 per cent.
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    1 Comment on this Story

    jitender thakur43 days ago
    good research ð ð
    The Economic Times