VIL’s weak cash position with outstanding cash and equivalents of Rs 26.6 bn in FY20 and EBITDA of Rs 58.1 bn would be insufficient to service the estimated cash requirement of ~ Rs 135 bn for FY21/22E.
While ARPU showed healthy 11% QoQ growth led by the price hike taken in Dec ’19, revenue grew a mere 6% due to subscriber decline of 4%. EBITDA on pre Ind-AS 116 basis (adj. For one-off credits) stood at Rs 17.1 bn, up 34% QoQ (12% above est.). Despite the beat on 4QFY20 estimates, we see limited upward revision for FY21 numbers. This is because ARPU growth (estimated earlier in 1QFY21) may get tapered in line with Bharti.
VIL’s weak cash position with outstanding cash and equivalents of Rs 26.6 bn in FY20 and EBITDA of Rs 58.1 bn would be insufficient to service the estimated cash requirement of ~ Rs 135 bn for FY21/22E and the much higher Rs 300 bn for FY23E. We believe ~50% price would be required to keep it afloat. With continued subscriber churn, especially in the data market and weakening competitive position, revenue growth through price hike is getting diluted. This is evident from 4QFY20’s results as the 11% ARPU increase translated into just 6% revenue growth. Against this, VIL has incremental network investment requirements, which may turn out to be a tall task ahead.
VIL’s fate is dependent on the AGR case resolution, as stated by its management. A positive outcome may provide the company with a new lease of life. It needs ~50% price hike to generate potential EBITDA of Rs 250 bn to garner sustainable cash flows, which would be sufficient to service debt (bank as well as deferred spectrum) and capex. Yet, this may leave limited incremental opportunity for equity holders, assuming 8x EV/EBITDA, Rs 1.1 trillion net debt and an additional Rs 510 bn AGR liability. With an uncertain outlook, the stock may be highly volatile to media reports on regulatory/judicial outcomes. In such an environment, we place the stock under review until we get clarity on the company’s business continuity.