Analysts Predicts a 48% Dip in VI’s Stocks

By Angel Broking | Published on 2nd July 2021 | 88

Analysts Predicts a 48% Dip in VI's Stocks

Vodafone Idea’s share hit its lowest circuit limit at 10%. This was followed by the company’s earnings release, which reported a loss of Rs. 7022.80 crores for the quarter ending in March.

With this debacle, Vi recorded its 11th consecutive loss. March quarter’s loss is higher than that of the December quarter, amounting to Rs. 4589.10 crores. Then again, it was significantly lower than the Rs. 11711 crores loss Vi had incurred a year ago.

The telecom operator’s auditor expressed concerns over Vi’s capability to continue as a ‘going concern’.  As the streak of loss continues for this telco, analysts were prompt in lowering the price target. They have set the price target at a meagre Rs. 5 and have further suggested an impending dip of 48% on the horizon.

But should this concern you?

To understand the situation better, you must analyse the company’s latest financial standing and dig a little deeper for analysts’ take on this stock.

A quick analysis of Vi’s quarterly earnings

At this point, we are accustomed to the fact that Vi could do so much better in dealing with its liabilities and guarantees and settle other debts only if it had ample cash at hand.

Indeed, the latest quarterly earnings report induced doubts and concerns over material uncertainty, its ability to pay debts, and remain afloat in the market.

That said, here’s a gist of the quarterly earnings for this March –

The Gross debt (exclusive of lease liabilities) of Vi stood at Rs. 180300 crores and it included the following –

Components Amount in crores
Deferred spectrum payment

 

Rs. 96270
Adjusted Gross Revenue liability

 

Rs. 60960
Debt from financial institutions and banks

 

Rs. 23080

The company’s CAPEX increased to nearly Rs. 1540 crores from Rs. 970 crores in the December quarter. Its unique towers remained stagnant at 180500, while its total broadband sites increased by 4700.

On comparing these figures with that of its market peers, it is clear that Vi’s performance has not been that impressive of late.

Even though Vi’s EBITDA for the March quarter managed to exceed analysts’ estimates, it missed the revenue mark by a large margin. On top of that, the company’s leverage stood at a concerning 2 times. This projects the company as ‘unsustainable’ down the road.

That definitely raises some valid questions on the company’s viability.

Analysts’ take on Vi’s plight

Though Vi is banking on potential investors to raise funds, analysts are not very impressed. Market experts are concerned about Vodafone-Idea’s current market share loss.

Also, the company’s high leverage and under-investment emerge as a persistent issue.

Accordingly, analysts have been careful in putting up the ‘sell’ rating on this telco play. It seems most brokerages continue to hold on to their bearish take on this company.

This table below will offer a brief insight into analysts’ take on this telecom operator –

Analyst Verdict on Vi
CLSA   Underperform
Credit Suisse Underperform
JP Morgan Underweight
Goldman Sachs Sell

Lastly, the brokerage slashed its EBITDA estimates by 11% for the fiscal year 2022 and 14% for the subsequent fiscal year. And it continues to retain its price target, which is currently at Rs. 5.

Owing to a rating downgrade, many of Vi’s lenders have inflated interest rates along with the security against facilities or the margin money.

To even out the blow, Vodafone–Idea had requested DoT to defer spectrum payment instalments worth Rs. 8211 crores that were payable on April 9 2021.

So, how’s the future looking for this telecom operator?

This telecom operator added nearly 42 lakhs of 4G subscribers this March quarter, which takes the subscriber base to a sharp 11.39 crores.

Furthermore, it assures cost optimisation and has set a target for annualised OPEX savings at Rs. 4000 crores.

So far, Vi claims to have achieved 65% of the targeted OPEX savings on a run-rate basis. The company portrays this positively, as it had set the targeted date to meet the goal at December 31 2021.

Final takeaway

It appears that Vi has managed to achieve a marginal improvement in its 4G subscriber space. Also, it has been successful in retaining its customers, thus, lowering its total subscriber loss.

However, analysts feel the margin is too miniscule to make an impact. Moreover, since the company’s fundraising efforts have not yielded any fruitful results, it is likely to face the heat as its liability dates inch closer.

At this point, it seems a decrease in AGR liability and government relief on spectrum liability could bring in some hope. But, all in all, investors should be highly alert about this telco play.

Frequently asked questions

What was Vodafone-Idea’s CAPEX in FY21 compared to Bharti’s?

Vodafone-Idea’s CAPEX for FY21 was Rs. 4150 crores, whereas Bharti’s CAPEX stood at Rs. 19700 cores.

Did Vodafone Idea’s stock score move upwards or downwards in one week?

Vi’s stock score moved downwards by 1 point on a 10-point scale in a week.

When is the scheduled date to pay the spectrum payment instalment?

Vodafone had to pay the spectrum payment instalment on April 9 2021.