"Global Pulse" : Vodafone Group - Profitable growth; Q4FY12 Result Excerpts :: Edelweiss PDF link

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Vodafone Group announced FY12 results. Vodafone India’s performance continued to impress us with EBITDA margin expanding 200bps HoH in H2FY12. Revenue grew 5.7% QoQ during the quarter driven by 6.7% QoQ volume growth. The Indian arm, in line with parent’s strategy, is focused not just on ARPU increase, but also on margin per user (AMPU). This has enabled it to enhance its EBITDA market share (among top three operators) by 270bps over the past 12 months. Overall, we believe Vodafone India’s focus on growing margins in its strong circles and volumes in weak circles is aiding profitable growth.         

Strong performance driven by volume growth and margin surge

Vodafone reported revenue growth of 5.7% QoQ in Q4FY12 in India, higher than Bharti Airtel’s (Bharti) 3.3% and nearly similar to Idea Cellular’s (Idea) 6.7% growth. Its volume (total minutes) growth of 6.7% QoQ, though was comparable to Bharti’s 5.1% and lower than Idea’s 9.1%. This was probably on account of its more disciplined approach to pricing as its voice RPM declined the least by 1.3% QoQ compared to 1.9% for Bharti and 2.7% for Idea. In FY12, Vodafone India reported revenue growth of about 20% and EBITDA growth of 23% YoY and incurred capex of INR62bn. It also reported free cash flow of INR40bn in FY12 compared to INR30bn in FY11. 

Focusing on cash flow and ROI

The company appears to be the least aggressive in the market compared to Bharti and idea, which is reflected in its subscriber additions over the past three months. The Supreme Court order cancelling licences of new operators has led to a forced consolidation in the industry, which is evident from Uninor slackening a bit as its subscriber additions slowed to 1.3mn in March 2012 compared to an average addition of over 2mn in the preceding six months. In our view, Vodafone expects to gain from this consolidation due to voluntary market share shifts (i.e., customers choosing Vodafone rather than it pushing through aggressive promotions) and probably believes that growth will come somewhat ‘easily’, thus, this is the time to focus on margins.

Outlook: Expect price discipline

Vodafone management indicated that the Supreme Court order is leading to consolidation in the sector and hence it does not see itself acquiring any operator. It also stated that at the current price, as recommended by TRAI, though it requires spectrum in future, there is no business case for acquiring additional spectrum. We believe the company will look to maintain operational discipline and focus on improving yields.

"Global Pulse" : Vodafone Group - Profitable growth; Q4FY12 Result Excerpts

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