Vodafone Idea Limited analyst Q&A

Thank you very much. We will now begin the question-and-answer session. Participants connected on the audio may please press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take our first question from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Yes, good afternoon. Thanks for taking my questions. Couple of them. First on the ARPU, if I adjust the days, it appears that ARPU has grown over 3.2% sequentially. What is driving this strong growth, because premiumization still underwhelming, we have added only 0.4 million customers on 4G and 5G. So, what is driving such a strong ARPU improvement? Is it better engagement with the customer? Can you help us understand and how much more is left in these efforts to drive organic ARPU growth for us?

Yes, thanks Sanjesh. So, I'll answer that in two parts. One, obviously, as you rightly said and which is also reflected in the data consumption that you saw, which has grown over 30%, which clearly reflects that the customers are now experiencing a very different network across the country. Second, the increase that we see in our unlimited data customers and the proposition which is a differentiated proposition that we launched last year, which is the Nonstop Hero, which gives the customer the freedom of using unlimited data for 24 hours, that is pushing. And as I said that quarter-on-quarter we see a significant increase of almost 25% on the Nonstop Hero. So, both of these; investment on network, addition of sites, increase in capacity, increase in population, we've also added roughly around 48 million more population to our kitty, which was not able to experience our services. So, all of that put together is reflected in the ARPU growth which is very strong and we intend to keep growing this way.

Got it. Got it. So how much more do you think is possible? Because I can see we are at a significant discount on an ARPU versus the peers. So, is there a significant gap which we can bridge through these efforts?

So, three parts to this, Sanjesh. One is, obviously, we are looking at these differentiated offering to bridge some part of the gap, but I don't think the gap will be bridged only with this. The way to understand this is the mix of the customers that we have. As I said, we have almost 67% of our customers now on the smartphone and 33% of them being on a feature phone. That is a big lever for us to push and this opportunity is available with us to upgrade our customers. So that's one. Second opportunity is, when we look at our smartphone base and the split between the customers who are still not using data with us, though they are using smartphone on our network. The third opportunity is that there are a lot of customers who are still using a data quota, which is a 1.5 GB a day or a 2 GB a day for them to move into a truly unlimited the Non-Stop Hero data. So, all of these things put together, we see a large opportunity for ARPU upgrade.

Got it. My second question is on the subscriber. We have almost reached to a flattish versus a decline historically. Can you help us understand how are we behaving in the areas or in the locations where we have added the network versus the areas we have not added the network to just get a sense what does it means in terms of capex and that translating into a subscriber growth?

Yes, Sanjesh. So, if you see our deployment of Rs. 16,000 Crores over the last six quarters that has been deployed in a graded manner in different circles depending upon the number of customers that we had in that circle. And I'll just pick up one circle for example, say, Maharashtra. So, we have circles like Maharashtra, Gujarat, Kerala, UP East, some of these circles where we have invested a little more than the other circle depending upon the customer availability that we had and the gap that we had. We see a significant change in three things: one, customer acquisition; second, the quality of customer being acquired; and the third is on the base retention. So, we clearly see a difference in the circles and in the areas within those circles where we have been able to add more layers, providing better experience, better capacity, and better coverage to the customers.

So, any number you want to put where we have put the network, how much we have grown just to understand the intensity of benefit we can get?

I'll say that the numbers are significantly better. We don't share the numbers circle-wise, but we can tell you that the circles that I named, have significantly grown better. One of the things that we are also seeing, which is helping both upgrading the customers as well as subscriber addition is the number of 5G cities that we have been able to launch over the last one year, which is upwards of 80 now. So, we can't share the numbers, but you can safely assume that these are some of the circles that I named, the difference is significant compared to others. Most of the circles have grown, but these circles have grown better than the other circles.

Got it. Very clear. My next set of question is on the opex and the fundraise. Network operating cost declined sequentially while we continue to add these sites. What's driving the efficiency in the network opex? Number two, on the fundraise, where are we in terms of debt fundraise that we are anticipating to come? How soon, because that will be key enabler in FY '27 in terms of the execution of our plan? And one related question on the shareholding pattern. Both the promoter, probably post-CLAM adjustment for Vodafone and Aditya Birla Group taking the preferential issue, now reaches probably first time an equal shareholding in the Vodafone and Idea. Will that change anything in terms of the Board structure or the agreement between the promoters?

Okay. So, you've asked three questions. One is on the opex, network opex, which I'll let Tejas to answer. But before that, I'll give you an answer on the debt raise and the second was on the promoter shareholding pattern. So, on the debt raise, we've maintained our capex for the over the next three years for Rs. 45,000 Crores. We are looking at a funded facility of Rs. 25,000 Crores and a non-funded facility of Rs. 10,000 Crores. We are deeply engaged, as we have said, it's an SBI-led consortium which is looking into this, the consortium is composed of PSU banks, private banks as well as the foreign banks. And we are confident of closing that very fast. We don't want to put a timeline, unless and until its closed. So that's on the debt, but we are very confident that our capex intensity and what we have spent in the last quarter or last year is only going to intensify towards the Rs. 45,000 Crores capex target that we have laid for ourselves over the next three years. As far as the shareholding pattern is concerned the current shareholding pattern is 16.07% for Vodafone plc and 9.57% for the ABG Group. That, post the conversion of the warrants as well as the CLAM, will stand differently, but that is only after they completely converted. So that's where we stand right now. The last part on the question that you said that will there be any change -- I don't think there is any change in the Board structure. Now I'll hand it over to Tejas for the opex on the network.

Thanks. Thanks for the question. Actually, if you're looking at quarter-on-quarter numbers, we spent Rs. 2,361 Crores on network cost in the prior quarter, vs. Rs. 2,345 Crores this quarter, so a small decline. I spoke about the cost management efforts as well. Secondly, broadly over the last few years we've worked on reducing our dependence on diesel and working on electrification of our network. So, Abhijit has also spoken about our self-optimized network. Both of them put together have kept the network cost flattish.

No, no, Tejas, I was referring that we have added 6% more site on a Y-o-Y basis. On the number of sites, if I add the loading, it is much higher. We have added almost 70,000 BTS in last 12 months, while the growth on the network opex is just 0.8%. Obviously, it appears very heartening, but how sustainable is this and should we see inflation coming from next year or there's more scope?

No, I think, both, I'll answer for both the quarter and the full year. You'll see the same trend on quarter and on full year. We've definitely benefited with the efficiency efforts that we have spoken about in the past. So, you are right, we have been able to offset the increase that you would have otherwise seen on the rollout cost. That one is totally aligned. But if you look at the cash cost, or look at the cash EBITDA, in the future you will see a little bit of inflation, but our efforts on efficiency will not go away. So, we will attempt to offset increase of the rollout, but yes, we would be lapping a year of this benefit already and hence you might see some inflation going forward as well. But for this year and this quarter, as you are saying, it was heartening to see the efforts fructifying and offset the rollout cost with efficiency.

Got it. Thanks Abhijit, thanks Tejas for all those answers and best of luck for the coming quarters.

Thank you, Sanjesh.

Thank you.

Thank you. Next question is from the line of Vivekanand Subbaraman from Ambit. Please go ahead.

Yes. Thanks for the opportunity. Abhijit, I wanted an update on the seven-key metrics that you are tracking. Now my understanding is that there are certain input metrics and the remainder are output metrics. So, of the KPIs that you're tracking which are input related, what are the highest priority areas for FY '27 and is there any thought process that you can share with us to help us understand this better and how this translates into you being able to step up outcome metrics like data usage per customer or even the customer ARPU number that you are talking about? Thank you.

Yes, Vivekanand, thanks for the question. So, those seven metrics that I spoke of that we track is basically revenue, cash EBITDA, customer addition, then the broadband customer addition, ARPU, site and the data usage. So, if you look at it other than the data customers and the subscribers, most of them are the output related metrics. All of these seven are critical for us. But one of the metrics, we have always been asked about subscribers because, while we will have three pillars of growth that we look at, which is one is on the ARPU upgrade, which is whether it is from a base or the upgrade, second is on the customer addition. So, customer addition remains a key priority focus for us and has turned positive from February 2026 onwards and we will continue that momentum. As far as the output is concerned, on ARPU I spoke about premiumization, which is also critical agenda. The other critical agenda for us, looking at the gap that we have, is the rollout and deployment on network for both 4G and 5G, which is again part of the seven metrics. So, in a manner all seven are critical, but from an input point of view, customer addition, site rollout, and broadband customer, which is a 4G/5G customer, these three remain critical from an input parameter point of view.

Okay, very helpful. Just one follow-up on the customer addition question. So, your churn has moderated quite a bit this quarter and if I look at the gross adds, they seem to be lower on a year- on-year basis, most likely because of your churn getting moderated. So, what has helped you in terms of moderating subscriber churn and the related question is, is there any moderation in the market activity at an industry level to reduce the rotational churn? Are there any initiatives that you want to call out and how should we think about the churn for you, let's say, in the next 12 months? The direction as well as any numeric thought process that you want to share. Thank you.

Thanks, Vivekanand, for asking that question. I think, while yes, the answer is that we have reduced the churn percentage, but if you were to look at the industry our churn percentage is higher. So that is one area that we are still working on. And as I was telling Sanjesh that the areas where we have invested relatively more we clearly see a delta of our retentivity. And which is obvious from the fact that the customers when they are getting the experience they tend to stay with us. And obviously there are a certain percentage of customers which keeps migrating from either a feature phone to a smartphone. And then they have an opportunity of upgrading it within our network, that adds to our retentivity exercise. The other part of the thing that I’d like to address is the gross addition which you said and your observation is absolutely correct. We have taken some strategic decisions for reducing cost of acquisition, which effectively means a better-quality customer. Because, in this industry the cost of acquisition willingly and unwillingly gets translated into a discount in the market. So, we are cognizant of that and as and when we are launch the network, both 4G and 5G, we are conscious that we are reducing the cost of acquisition and also spreading our business through the distribution channel to start focusing more on the quality of customer acquisitions rather than the quantity of customer acquisition. And that is one of the reasons why in the last call, earnings call, I had said that if you look at our acquisition, in quarter 2 it was 21.8 million, which dropped to 19.3 million in quarter 3 and which we have maintained at 19.1 million in quarter 4 was by design to ensure that we are able to get a better-quality customer. And that obviously reflects in better churn and retentivity as well. The second part is on the MNP, which is a large industry as you would imagine in the Indian context, 47% of the customer acquisition happens where the customer is moving from one operator to another. We have been a small player in that with around 20%-odd share, and that's something that we are focusing on again, in the areas where we are putting a network. So, there is a focused strategy market by market to look at how we extract value from the infrastructure that we are putting on both 4G and 5G.

Thanks Abhijit for the detailed explanation. My last question is not just to you but to Tejas as well. So currently your cash EBITDA margin is 20.5%. I want to understand from you the capex cycle, after you complete it, where do you see this EBITDA margin trend towards? Because we know that the gap between your EBITDA margin and that of the peers is very significant. If you can help us think this through better quantitatively and also any levers that you want to point out, I think some of them you discussed already, which is your cost curtailment program on network and SG&A, but if you can help us think this through better, because last year we didn't see any incremental EBITDA margin because revenue got added but cash EBITDA didn't flow through.

No, thanks for the question, Vivekananda. as you have heard us before and look at the ambition that Abhijit has shared at the investor call we had, we are looking to significantly uptick our revenue and hence the flow through to cash EBITDA margin. If you see where we are today, we are at 20%, and you are absolutely right because in the next three-four years this has to increase. If you use the numbers we’ve shared before they translate to a double-digit revenue growth and the cash EBITDA number will be north of 35%. We don't want to share in which year that will happen but that should be our ambition for EBITDA margin. If we do what we have said in the past on our revenue growth and our cash EBITDA growth. There are largely three levers of growth which is customer, Abhijit has spoken about ARPU. The industry pricing architecture over the next two-three years as that plays through and our own confidence on decreasing churn in circles where we have deployed incremental capex. Those are all the levers we will use and leverage as we look at flowing this revenue into the bottom line.

Thank you, Tejas. Appreciate the color. All the very best.

Thanks Vivekananda. Thank you.

Thank you. Next question is from the line of Ritvik Agrawal from 3P Investment Managers. Please go ahead.

Hi, thanks for the opportunity. Just wanted to understand with the ongoing increase in smartphone prices due to RAM shortage, how are we seeing this migration from 2G to 4G? And a second question on capex, I feel this quarter the capex was lower as compared to some of our peers. Where do you think this can go in the coming quarters?

Yes, thanks Ritvik for asking that question from a smartphone penetration point of view, yes, there's a little bit of a dip that we saw in the smartphone being sold in the country, but I think to my mind that's more temporary and it's not something that will stay. And we s typically see between a 3% to 4% upgrade within our network for customers who are upgrading from a feature phone to a smartphone. And that doesn't seem to be coming down at least in the last few months that we have noticed. We are keeping a close eye. I don't think that to be honest a concern. So that's point number one. Point number two is the way we look at this opportunity and the headroom available. As I said, we have 33% of our base using a 2G handset, which is a large opportunity as compared to anybody else in the industry. We are focusing on this opportunity and starting to put network in those areas and capacities in areas where we have customers who will upgrade and need to have a much better experience. So, I don't think that to be honest it is a concern. On the second question is on the capex, as I said, we've spent Rs. 8,700 Crores in the last full year versus an Rs. 9,600 Crores of the previous year. Our capex intensity, as we have laid out our plan for the next three years is Rs. 45,000 Crores that absolutely remains intact and we are on track. So, you will see a far greater intensity of capex starting from quarter 1 and further intensifying in subsequent quarters of this financial year.

Understood. Thank you.

Thanks.

Thank you. Next question is from the line of Gaurav Malhotra from Axis. Please go ahead.

Yes. Hi. Thanks for the opportunity. Just a couple of questions, so one, when I look at the VLR subscriber number percentage, it's still lower than peers. So just wanted to get a sense on why this should be still lower than competitors. And the second question is now that you have launched 5G, any sense on FWA plans? Thanks.

Yes. Gaurav, thanks for the question. So, I'll answer the second one first. So, on the FWA yes, we are looking at some of the pilots. As we said that we launched 5G in Mumbai last year and now we are at upwards of 80 cities. We are evaluating FWA, but right now the focus largely on the mobility, because we have a large gap on the mobility front on both 4G and 5G. So, the focus will definitely be on mobility and the connectivity. FWA will be a part of the strategy, but only on a select basis. So that's the strategy and what we guided last time. On the VLR question, we have a mix of customers who because their network experience is patchy at times, tend to churn. That's the only reason why we see a fairly decent proportion of customers who keep moving in and out of the network, which impacts the VLR. So, this VLR percentage, if I look at some of the circles are upwards of 93%-92%, but in certain circles it pulls us down to 80% and hence the average range lied between 88%-87%. So that's the answer to VLR.

So, if I understand correctly, it's not that these are inactive subscribers, it is just that they may be multi-simmers, who are not using the Vi number as frequently to fall within the VLR ambit is that correct?

Primarily yes, Gaurav. That could be because, obviously some of them will fall into inactivity and hence they churn out and lead to a larger churn optically. But primarily these are not the inactive customers; they are the customers who move in and out of the network, depending upon their experience and their usage.

And just a follow-up, so these shifting customers, they would be 4G or more 2G customers?

It will be a mix of both actually, 2G and 4G, so depending upon, which geography and circle, are we looking at.

Okay.

Depending upon how the experience is there.

Understood. Thank you.

Thanks, Gaurav.

Thank you. Next question is from the line of Balaji Subramanian from IIFL. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. I have two questions. The first one is on the subscriber growth side. While, we can see and understand the different levers that you have for ARPU and you have clearly articulated them as well, how do you see the subscriber growth going forward? The context is that we have, two strong operators who have reached fairly close to their steady- state subscriber market share and from there on what is your strategy to grow the subscriber base? Is it going to be churning customers away from them, does that mean that we are going to see a higher marketing spend than the industry? And the second question would be that how do you plan to make the spectrum payouts from FY '28 onwards? FY '27 looks fairly manageable because based on whatever plan commitment you might end up receiving and the promoter equity infusion, but going forward, especially in case there is no further equity issuance and no meaningful conversion of any spectrum debt into government equity, how do you plan to tackle those? Thank you.

Okay. Thanks, Balaji. I'll take the first one on the subscribers. So, four clear levers on the subscriber addition, the first lever has been covered in response to the questions of your colleagues which is churn. Our churn is approximately 4%, which is significantly higher than the other operators. The moment we start adding network and capacity, we clearly see the churn arresting. We are targeting a 0.5% - 0.6% reduction in churn. So that's one lever on the customer addition for which we don’t have to compete with other operators. Second part on the subscriber addition is the new population that I'm adding. Over the last six quarters, we have added 125 million incremental population in the areas where we have expanded our coverage. Over the next year or year and a half, we will add another 60,000 to 70,000 4G sites so that is another 125 million population being brought under the fold. So that's a second lever of growth, which is territory where I'm not present today. Third, I spoke about the MNP, which is a market that I am participating in but I am not fairly, represented in that market. This lever links to your question about competing with other operators. There are roughly around 1.4 odd Crore customer every month which come in the MNP segment to be acquired. I think we play a very small part there with some 3-odd million customers. There are 1.1 Crores customers who shift between only two operators. We will provide a viable third option to this segment. And the last one is wherever we are going to put network or where we already have network, we have been over-leveraging the network on the gross acquisition, which I touched upon briefly, which means that the quality of customer that you acquire is not as good as probably the other operators. We are now focusing very clearly on making sure that our quality of customer is as per the industry standards, which we see as an opportunity. So, these four things put together is what the strategy is on the customer acquisition. As far as higher spend because of the customer acquisition is considered, the answer is no. We will rather have a per-sub cost of acquisition lower than this year. But yes, if there is a volume variance as compared to this year then, those costs will go up. I will rather be focusing more, on one of our stated strategy which is brand reappraisal. And I think that's one area and opportunity to explore, now that the vicious cycle of losing customer confidence because of the AGR overhang, is conclusively behind us, we see a clear opportunity and the gap in the market to reappraise our brand and its positioning. So, you will see some heightened activity on that front, but definitely not in the market where I'm not getting quality customers.

Balaji…

That answers my first question. If I can have a quick follow-up, so when you said the second point on expanding population coverage, so I would presume that there would be at least one of the other two large competitors there, right? So that also would entail, some bit of, churning away from them assuming that or MNP-led gains there. So, is that a fair statement?

Yes, there will be some part of that in those areas. Because obviously if there are only two players available or one player available and the market is large, I'll be able to participate in that area.

Yes, that answers my first question. On the second, yes?

Yes. So, on your question on the spectrum payout, right now we are not looking at any kind of change or adjustment in the spectrum payout. To your question regarding how are we looking to pay this, I can simply articulate it let's say over the next three years, these are numbers discussions that we've had probably in the past as well so if you look at our capex ambition, we want to spend Rs. 45,000 Crores of capex over the next three years. Rs. 7,000 Crores, Rs. 15,000 Crores and Rs. 27,000 Crores is the spectrum I have to pay over next three years, that makes it Rs. 49,000 Crores. Then I have to also service my debt, so let's say another say Rs. 5,000-6,000 odd crore if you add that up it's about Rs. 100,000 Crores. I'm starting this year with a cash balance of more than Rs. 3,500 Crores. Now let me look at the cash sources for the next three years: as we've shared we want to look at tripling our EBITDA, and we spoke about the levers as well, that gives me a cumulative cash EBITDA between FY’27, ‘28 and ‘29 of about Rs. 60,000 Crores. We've spoken about the debt of Rs. 25,000 Crores funded and a rolling LC facility which we will keep utilizing for the next three years, so that gives me another Rs. 35,000 Crores. On top of that, we have the CLAM settlement and we have confidence in our income tax refunds that we've seen in the past the combined amount will be another Rs. 10,000 Crores in totality with the CLAM and the IT refund. So that gives you Rs. 105,000 Crores plus the opening balance. And the promoter infusion, will add to an already positive cash flow. In that sense we are very confident that with the bank loan for the capex and for the EBITDA, we'll be able to fulfill our all obligations across the next three years and the infusion will only add to this. Hope that helps, Balaji.

Okay, thanks. This is very clear and super helpful. All the best.

Thank you, Balaji.

Thank you. Let me wrap up by restating our ambition. As you heard Tejas say, our three-year targets are unambiguous: sustained net customer addition, double-digit revenue growth, and 3x EBITDA. We are backing these targets with Rs. 45,000 Cr of investment, strong promoter commitment and a leadership team that has managed through some of the most challenging conditions in Indian telecom and emerged intact. The worst is behind us. The seven key parameters that we track are already moving in the right direction. The seventh, net subscriber addition, is narrowing fast. We enter FY27 with a clear strategy, improving operational momentum and growing confidence in the trajectory ahead. Thank you all for joining in.

Thank you. On behalf of Vodafone Idea Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.