Voda Idea dips 5% as loss grows to Rs 11,742 cr; here's what brokerages say

On the revenue front, the company reported flat growth on a YoY basis
Shares of Vodafone Idea dipped as much as 4.9 per cent on the BSE on Wednesday after the company posted a loss of Rs 11,643.5 crore in Q4FY20 due to one-off expenses.

However, on the revenue front, the company reported flat growth on a year on year basis. On a sequential basis, revenue rose 6 per cent to Rs 11,754 crore due to tariff hike. The company's subscriber base declined to 291 million in fourth quarter from 304 million in the previous quarter while average revenue per user improved to Rs 121 from Rs 109 in the same period.

The telecom company, which is estimated to have AGR-related dues of more than Rs 46,000 crore, said that its ability to continue as a going concern depends on the Supreme Court giving it a favourable verdict in the adjusted gross revenue (AGR) matter. It has sought 20 years to clear the dues and said its survival depends the court verdict and successful negotiations with lenders. Vodafone Idea breached debt covenants as on March end, limiting its ability to generate fresh funds to settle its dues.

At 10:07 AM, the stock was trading 2.35 per cent lower at Rs 10.37 as compared to 0.5 per cent gain in the S&P BSE Sensex. A combined around 22.8 crore shares have already changed hands on the NSE and BSE so far. 

What brokerages say

Analysts at Motilal Oswal have placed the stock 'under review' in their result update, saying that with an uncertain outlook, the stock may be highly volatile to media reports on regulatory/judicial outcomes.

"VIL's weak cash position with outstanding cash and equivalents of Rs 2,660 crore in FY20E and Ebitda (pre INDAS 116) of Rs 5,810 crore would be insufficient to service estimated cash requirement of around Rs 13,500 crore in FY21/22 and much higher Rs 30,000 FY23 onwards (as the two year deferred spectrum payment moratorium ends). We believe ~50% price would be required to keep it afloat," the brokerage said.

It also said that Vodafone Idea was losing competitive position in the telecom sector and that the company's high leverage leaves limited upside for the shareholders.

"A positive outcome (in AGR case) may provide a lease of life. It needs ~50% big price hike to generate potential EBITDA of Rs 25,000 crore to garner sustainable cash flows, sufficient to service the debt (bank as well as deferred spectrum) and capex. Yet, this may leave limited incremental opportunity for the equity holders, assuming 8x EV/EBITDA and Rs 1.1 trillion net debt and additional Rs 51,000 crore AGR liability," the brokerage said.

Credit Suisse said that Vodafone Idea's net debt (including AGR dues) remains high at 18.8X while the company's long-term viability continues to remain under a cloud.

"It continues to trail Bharti Airtel on growth and subscriber metrics. Net Debt (ex-AGR dues) rose 9% QOQ as cash balance rapidly depletes. The company may find it challenging to service AGR dues if payment tenure is short," it said.

On the other hand, analysts at CLSA reiterated their 'BUY' rating on the stock, while also lifting the target price from Rs 12 to Rs 14 due to the "favourable risk-reward ratio".

"Voda Idea's Q4 revenue was ahead of our estimate. Mobile ARPU increased 11% QoQ to Rs 121 but subcribers declined to 291 million...VIdea's debt burden is enormous, but 78% is spectrum liabilities. With a rise in Ebitda, gearing will fall to c.6x by FY22CL. We raise our FY21-22CL forecast by c.1% and see further upside, with potential sector floor tariffs.," it said.

Speaking on Vodafone Idea's quarterly results, associate equity analyst at Angel Broking, Keshav Lahoti, said that overall, the result was better than street estimates in terms of revenue, ARPU, Ebitda and Ebitda margins. 

"However, among all the three leading telecom operators, only Vodafone Idea lost subscribers. Favourable Supreme Court ruling, improvement in ARPU, reduction in loss of market share and any major investment by a big tech investor will be the key triggers for upside in the stock," he said.

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