The stock has declined in all but two sessions so far in October and currently trades near Rs 8.5. It had scaled its 52-week high of Rs 13.45 on September 4 and is up 30 per cent year to date.
Analysts say only those with a higher risk appetite may take a plunge and take exposure to the stock. For them, Bharti Airtel remains the top pick to play the telecom story in India.
Vodafone Idea had 1 ‘buy ‘, 5 ‘hold’, 7 ‘sell’ and 3 ‘strong sell’ ratings on the publicly available Reuters Eikon database as of this past weekend. The mean and median price targets of these estimates stood at Rs 7.22 and Rs 6, respectively.
Woes of the cash-strapped telco are far from over, as a declining subscriber base, wafer-thin industry margins amid an ongoing tariff war and huge dues to the government weigh on it.
As the country eased Covid restrictions gradually, telecom subscriber base grew steadily in July after five months of continuous decline, data from the Telecom Regulatory Authority of India (Trai) showed.
However, Voda Idea was the odd one out and continued to report subscriber loss, with some 3.7 million users deserting the telco during the month. Rival Bharti Airtel added 3.2 million during the month, and Reliance Jio 3.5 million.
In terms of the wireless market share too, Vodafone Idea finished at the bottom with 26.3 per cent market share against Reliance Jio’s 35 per cent and Airtel 27.9 per cent.
To add to the ongoing woes, the company has been seeing top-level exits. Only last week, Chief Technology Officer Vishant Vora put in his papers.
Rusmik Oza, Executive Vice-President and Head of Fundamental Research, PCG at Kotak Securities, said Vodafone Idea has lost its ability to command the market and needs to ramp up financials to get back in shape. He said there is a lot of scope for prices to go up for prepaid users, which can help improve the average revenue per user (ARPU).
“Reliance Jio is looking to garner more market share, and it might not hike the tariff even if the other two do. Given the deep pockets and recent mega fundraising, Jio could continue to remain competitive on the pricing front,” Oza said.
“At this level, high risk-high reward investors can consider buying the stock. Bharti Airtel is a no-brainer for those who want to bet on the telecom sector,” he said.
Oza believes Vodafone will survive. “It is unlikely that the company will go bust, as it is in the interest of the government to continue with three players in the market, considering the huge amount of dues Vodafone Idea owes to it in adjusted gross revenue (AGR) dues and in spectrum charges,” he said.
On September 28, Goldman Sachs reiterated a ‘sell’ rating on Vodafone Idea and retained its price target at Rs 3.30. It expects continued erosion in Vodafone’s market share and believes that peer Bharti Airtel offers an attractive entry point.
At its annual general meeting last month, Vodafone Idea shareholders approved a slew of proposals, including an increase in its borrowing limit and issuance of securities of up to Rs 15,000 crore.
Last month, the Vodafone Idea board had approved plans to raise up to Rs 25,000 crore through a combination of equity and debt instruments, subject to shareholders' approval.
The ambitious fundraising plans can grant a lifeline to cash-strapped firm, which has suffered massive losses in recent months. In July, the telecom operator had reported a staggering Rs 73,878 crore net loss for the financial year ended March 2020 — the highest ever by any Indian company — after it provisioned for the Supreme Court-mandated statutory dues.
The company’s overall adjusted gross revenue (AGR) dues stood at over Rs 58,000 crore, out of which it has cleared Rs 7,854 crore to the Department of Telecom so far. The Supreme Court has since mandated telecom companies to pay 10 per cent of their AGR dues by March 31, 2021.
Vodafone is the third largest operator in the fiercely-competitive Indian telecom market, where Reliance Jio's entry in 2016 with free calls and cheaper data pushed some rivals out of the market while some others had to merge with the biggies.
Jio Platforms -- the unit that houses India's youngest but largest telecom firm Jio and apps -- recently raised Rs 1,52,056 crore from 13 investors, including Facebook, Google, General Atlantic, Intel Capital and Qualcomm Ventures.
An even bigger blow came when the Supreme Court last October upheld the government's position for including revenue from non-core businesses in calculating the annual AGR of telecom companies, a share of which needs to be paid as licence and spectrum fee to the exchequer.
Sudip Bandyopadhyay, Group Chairman at Inditrade Capital, said there is still a question mark over Vodafone Idea’s future.
“They need to raise a lot of money to remain viable and competitive. Beyond the AGR and related issues, the fundamental issue with Vodafone Idea is that operationally they need to improve significantly,” Bandyopadhyay said in an interaction with ETNow.
“I think it is a long way to go before we can comment on Vodafone. Short-term market fluctuations and speculative buying on the counter can continue, but if one were look at it fundamentally, I have become positive on Bharti Airtel post the massive correction in the stock over the last one-and-a0half months,” he said.
Not everyone was so pessimistic.
On October 13, Ambit Capital came out with a ‘buy’ rating on Vodafone, citing cheap valuations, but said it preferred Bharti Airtel due to greater predictability.
Telecom companies are expected to report a stable to better numbers in terms of metrics such as Arpu and revenues for September quarter, and losses may narrow for the sector at large.
Kotak Institutional Equities expects Bharti Airtel to report a net profit of Rs 75.7 crore, compared with a net loss of Rs 23,044.9 crore reported for the year-ago period, while it projects Vodafone Idea to log a net loss of Rs 927 crore compared with Rs 50,921.9 crore a year ago.
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