Update | 15 May 2018
Telecom
Vodafone India reports muted 4QFY18 revenue
Continues to focus on improving network synergies
Vodafone India’s 4QFY18 results indicate continued ARPU pressure and declining earnings.
The management highlighted that the merger should conclude by June 2018 and that the
merged entity continues to focus on improving network synergies and responsiveness to
peer pricing. It intends to deleverage the balance sheet and would draw upon Indus stake
value if additional funding is required for the merged entity.
Revenue declines 5% QoQ; EBITDA up due to one-offs
Wireless revenue declined 5% QoQ (23% YoY) to INR71b, mainly due to decline in
ARPU. This is in line with the 4% QoQ decline in Bharti India’s wireless revenue and
6% QoQ decline in Idea’s revenue. Yet, EBITDA grew 17% QoQ to INR19.1b (Bharti’s
India wireless EBITDA declined 16% QoQ while Idea’s EBITDA grew 18% QoQ), led by
one-off provision reversal and cost optimization measures (including network
sharing). EBITDA margin expanded 450bp QoQ to 24.6% (Bharti’s India wireless
EBITDA margin was 28.4% and Idea’s EBITDA margin was 23.6%). For FY18, revenue
declined 20% to INR324b and EBITDA declined 35% to INR75.5b.
ARPU declines 8% QoQ on low-value bundles
ARPU declined 8% QoQ to INR105 (v/s 6% QoQ decline to INR116 for Bharti and 8%
QoQ decline to INR105 for Idea). However, this was partly offset by 5% (10.2m) QoQ
growth in subscriber base to 222.7m, reducing the impact on revenue. Data traffic
surged 36% QoQ to 774b MB (monthly 258b MB data traffic; 15% of RJio’s 4QFY18
number); yet, falling data ARPU led to 6% QoQ decline in data revenue to INR17.7b.
Voice revenue declined 4% QoQ to INR53.3b.
No plan to initiate price competition, but will respond to peer pricing
The management indicated that it is still unclear whether the current pricing is at its
bottom; however, compared to a year ago, ARPU decline has flattened. It expects
the merger to conclude by June 2018, and is focusing on driving network synergy,
branding for the new entity, and responsiveness to peer pricing. It indicated that it
does not plan to initiate price competition, but will match competition. Given the
cost optimization in the last 18 months, earnings have high price elasticity and a
10% ARPU increase could be of immense benefit.
Endeavor to reduce leverage
The management indicated that with the recent tower sale and equity infusion, the
merged Vodafone-Idea entity should start operations with net debt of INR1,029b,
including settlement charges towards spectrum liberalization and site exits. It
guided proforma leverage of 7.8x or 4.7x LTM EBITDA, including run-rate synergies.
Further, a 10% increase in ARPU would reduce leverage well below 4x. We believe
including FY19E capex, overall debt could balloon to INR1,200b with 9-10x net debt
to EBITDA. The management hinted that it would draw upon Indus stake value, if
additional funding is required in the future. We believe both Vodafone and Idea
promoters may have to make significant capital infusion in the next six months to
manage capex beyond FY19, deleverage the balance sheet, and fight competition.
Any steps towards the same would be a key positive for the merged entity’s
competitive position in the market.
Aliasgar Shakir – Research Analyst
(Aliasgar.Shakir@motilaloswal.com); +91 022 6129 1565
Hafeez Patel – Research Analyst
(Hafeez.Patel@motilaloswal.com); +91 22 6129 1568
8 August 2016
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.

Telecom
Exhibit 1: Vodafone India: Key performance indicators
Particulars
India Wireless (INR b)
QoQ growth (%)
ARPU (INR)
QoQ growth (%)
Subscriber base (m)
QoQ growth (%)
Data Volumes (b MB)
QoQ growth (%)
FY16
4Q
108.8
3.5
177
1.1
197.9
2.2
94.4
0.7
FY17
1Q
108.9
0.1
176
(0.3)
199.4
0.7
100.5
6.5
2Q
106.5
(2.2)
171
(3.1)
200.7
0.7
110.4
9.8
3Q
99.7
(6.3)
158
(7.5)
204.7
2.0
105.5
(4.5)
4Q
92.2
(7.5)
142
(9.9)
209.1
2.1
129.4
22.7
1Q
92.4
0.2
141
(1.1)
211.9
1.4
237.9
83.8
FY18
2Q
3Q
4Q
85.7
74.5
71.0
(7.3)
(13.1)
(4.7)
132
114
105
(6.6)
(13.1)
(7.8)
207.4
212.5
222.7
(2.1)
2.5
4.8
383.8
567.4
773.5
61.4
47.8
36.3
Source: MOSL, Company
Exhibit 2: Vodafone India: Key financial metrics (INR b)
Mobile service revenue
Mobile incoming revenue
Other service revenue
India Wireless Revenues
Fixed line revenue
Service revenue
EBITDA
EBITDA margin (%)
1HFY17
182.8
24.6
7.9
215.4
10.4
225.8
66.3
29.4%
2HFY17
157.1
27.2
7.6
192.0
11.7
203.7
50.0
24.6%
1HFY18
140.2
31.9
6.4
178.5
12.0
190.5
40.1
21.1%
2HFY18
121.7
18.8
5.1
145.6
13.1
158.7
35.4
22.3%
4QFY17
46.6
14.4
3.9
92.2
6.1
98.4
21.8
22.2%
1QFY18
73.4
15.5
3.5
92.4
5.8
98.3
20.5
20.9%
2QFY18
66.4
16.3
2.9
85.7
6.2
91.9
20.1
21.9%
3QFY18
63.0
9.0
2.5
74.5
6.6
81.0
16.3
20.1%
4QFY18
58.6
9.8
2.6
71.0
6.5
77.5
19.1
24.6%
Source: MOSL, Company
Exhibit 3: Vodafone-Idea pro formanet debt (€ b)
-1.0
7.2
13
6.9
IDEA net debt
(Mar-18)
*80% spectrum debt
VIL net debt
contribution
VIL & Idea
standalone
tower sale
Potential sale
of Idea stake in
Indus Towers
Other
payments
Proforma net
debt of JV*
>0.5
-0.8
Source: MOSL, Company
15 May 2018
2

Telecom
Story in charts
Exhibit 4: Wireless revenue (QoQ trend)
India Wireless (INR b)
1.4
(1.5) 1.2
3.5 0.1
(2.2)
growth (QoQ)
0.2
(6.3) (7.5)
(7.3)
(13.1)
(4.7)
22.2
20.9
21.9
20.1
27.4
24.6
Exhibit 5: EBITDA margin (QoQ trend)
EBITDA (INR b)
EBITDA margin (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 6: Subscriber and ARPU trend
Subscriber base (m)
184 178 175
176 171
177
158
ARPU (INR)
Exhibit 7: Data traffic continues to rise
Data volumes (b MB)
growth (QoQ)
83.8
61.4
22.7
(4.5)
47.8
142 141
132
114
16.0 10.5 13.5
105
36.3
0.7
6.5 9.8
Source: Company, MOSL
Source: Company, MOSL
Exhibit 8: QoQ trend in Voice revenue
Voice Revenues (INR b)
(2.3) (3.0) 0.8
growth (QoQ)
Exhibit 9: QoQ trend in Data revenue
17.8
(4.2)
(15.5)
Data revenues (INR b)
4.1 2.3
4.3
5.6
0.9
(10.4)(11.2)
growth (QoQ)
0.8
0.1
3.3 (1.5) (3.2) (5.0)
(6.4)
(7.3)
(7.3) (4.8) (6.0)
Source: Company, MOSL
Source: Company, MOSL
15 May 2018
3

Telecom
Exhibit 10: QoQ trend in data subscribers (m)
2G subs (m)
67
38
69
3G/4G subs (m)
68
Total data subs (m)
76
70
Exhibit 11: QoQ trend in service revenue growth (%)
Reported (%)
Ex. MTR's* (%)
41
46
52
60
-11.5
-9.4
-13.9
-17.8
-14.2
-23.1
-21.2
4QFY18
29
4QFY17
28
1QFY18
22
2QFY18
18
3QFY18
16
4QFY18
4QFY17
1QFY18
2QFY18
3QFY18
Source: Company, MOSL
*Excluding the impact of domestic and international termination
rate cuts
Source: Company, MOSL
Exhibit 12: Active subscriber market share trend (%)
20.5%
20.0%
19.5%
19.0%
18.5%
Exhibit 13: Adjusted gross revenue market share trend (%)
27%
24%
21%
18%
15%
Feb-18 VLR rate for Aircel is assumed to be same as Jan-18
Source: TRAI, MOSL
Source: TRAI, MOSL
Exhibit 14: Consumer NPS (points)
Gap to next best
10
Gap to third
9
4
5
4QFY17
4QFY18
Source: MOSL, Company
15 May 2018
4

Telecom
NOTES
15 May 2018
5

Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
Telecom
*In case the recommendation given by the Research Analyst becomes inconsistent with the investment rating legend, the Research Analyst shall within 28 days of the inconsistency, take appropriate measures to make the recommendation consistent with the investment rating legend.
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15 May 2018
6