Tuesday, July 24, 2012


The Vodafone Group announced Q1FY13 interim results. As these are interim results, only operating metrics and revenue performance are disclosed. Vodafone India’s operating metrics continued to remain impressive with voice revenue growth of 4.1% QoQ compared to 5.2% QoQ in Q4FY12, even as total minutes growth (volume) slowed to 4.2% (6.7% in Q4FY12). Stable voice RPM after declining 1.3% QoQ in Q4FY12 is the primary highlight of Q1FY13, in our view. The company refrained from joining its peers, Bharti Airtel (Bharti) and Idea Cellular (Idea), in chasing subscriber market share, which probably helped it maintain voice RPM.

Staying away from the oft beaten path
Vodafone reported revenue growth of 4.1% QoQ in Q1FY13 in India. Its volume (total minutes) growth slowed to 4.1% QoQ as MOU increased 2.1% QoQ compared to 4.7% QoQ in Q4FY12. The stable voice RPM in the quarter compared to a decline of 1.3% QoQ in Q4FY12 indicates that it is reluctant to sacrifice yields for the sake of volume growth. It is clear that the company is focusing on higher ARPU customers, evident in the ARPU trend, which rose for the third consecutive quarter to INR180. Since these are interim numbers, Vodafone does not disclose detailed financials; hence, margin trend is missing. But, as highlighted in our Q4FY12 results note (see table 1 on page 2) the company has been garnering higher EBITDA share than revenue share among the top three operators. Thus, Vodafone has been able to demonstrate its ability to achieve profitable growth through a fine balance between maintaining yields and growing volumes.

Are postpaid customers becoming price elastic?
It is interesting to note that Vodafone’s postpaid ARPU has declined in seven of the past eight quarters while its prepaid ARPU has risen in the past three quarters. It seems that on one hand it is focusing on expanding the postpaid customer base (with lower ARPU than its existing postpaid customers, but still having significantly higher ARPUs than prepaid customers), which is indicated in the decline in postpaid ARPUs, while on other it is focusing on prepaid customers with higher ARPUs, thereby driving its blended ARPU higher. The decline in postpaid ARPU along with the increase in postpaid churn suggests that the company is losing high‐end customers. If this is on account of its reluctance to sacrifice yields, then it debunks the belief that postpaid customers are price inelastic.

Outlook: Expect price discipline
Vodafone has remained disciplined and focused on EBITDA market share. In our view, the industry will be compelled to look at profitable growth post auctions. Unlike Vodafone, we expect, Bharti and Idea to report pressure on RPMs due to their focus on volumes.

To read report in detail: VODAFONE