Vodafone Idea recovers 24% after hitting record low post Q2 results

Telecom sector
Telecom major Vodafone Idea plunged 11.5 per cent to hit an all-time low of Rs 2.61 apiece on the BSE on Friday after the company reported a net loss of Rs 50,922 crore, the biggest ever loss in corporate India's history, due to outstanding payment related to adjusted gross revenues, or AGR.

The stock, however, bounced back 24.5 per cent from day's low to hit an intra-day high of Rs 3.25 per share on reports that the government was mulling sops to revive the telecom sector. At 12:15 PM, the stock trading over 6.4 per cent higher at Rs 3.14.

The company reported a massive pre-tax loss of Rs 36,959 crore for the July-September quarter, against a loss of Rs 4,974 crore in the year-ago quarter while the loss in the June quarter was Rs 4,874 crore. It provisioned for Rs 27,610 crore on account of licence fees and Rs 16,540 crore, including interest and penalties on interest, related to spectrum usage charges (SUC) up to September 30, 2019, the company's financial statement show.  

"Liabilities on account of AGR are Rs 25,678 crore. The estimate is based on demands received from Department of Telecommunications (DoT) and additional estimates," the company said in a statement. READ HERE

"Vodafone Idea Limited reported a relatively weaker set of operating performance with weak revenues and Earnings before interest, tax, depreciation and amortization (EBITDA). The company reported a loss of Rs 50,922 crore (our estimate – loss of Rs 4,601 crore), given weak operating performance and further accentuated by exceptional items of exceptional items worth Rs 30,774 crore... We continue to believe that Vodafone Idea is weakest among the surviving 3 telcos," analysts at ICICI Securities said in a results' review note.

They added that the company could be pushed towards bankruptcy in the absence of any relief measure from the government.

Vodafone Idea’s net debt to equity ratio has jumped to a record level of 4.5x at the end of September this year, as against 1.24x at the end of June and 1.8x at March-end. This makes Vodafone Idea one of the most indebted firms in the country comparable to financially stressed firms in sectors such as infrastructure and power sector. At Rs 24,000 crore now, Vodafone Idea’s net worth is down nearly 70 per cent, as compared to the numbers at the end of June this year. The company’s net debt was up 7 per cent during the period to Rs 1.07 trillion. READ HERE

Meanwhile, shares of Bharti Airtel slipped up to 2.2 per cent to Rs 354.4 in the early trade, but pared losses later to trade 5.1 per cent higher at Rs 381.25. Despite a net loss of Rs 23,045 crore in Q2, as against a profit of Rs 118.8 crore in the September quarter last year, foreign brokerages maintained 'buy' call on the stock.

Brokerage firm Citi maintained the call based on the company's "relatively healthier balance sheet" and robust EBITDA performance. 

"We have incorporated AGR provision in our estimate, though have kept it as a non-cash item," it said, adding, "We see EBITDA growing at 15 per cent CAGR over FY19-22, as against a (-) 9 per cent over FY16-19".

UBS, too, maintained the 'buy' call with a target price of Rs 415, basis the company's accelerated 4G investments. "Bharti Airtel has maintained its marke share solidly backed by strong spectrum bank," it said. 

"Trading at 9x EV/EBITDA value for FY21E, the company remains attractively valued," it said.

Bharti Airtel reported a pre-tax loss of Rs 31,334 crore for the September quarter (Q2), after providing for outstanding payments on account of AGR. The pre-tax loss in the year-ago quarter stood at Rs 1,998 crore. However, given the jump in deferred taxes (tax reversal), the reported loss at the net level came in at Rs 23,045 crore in Q2. Before provisioning for the exceptional item, the company’s net loss stood at Rs 1,123 crore for the recently concluded quarter. READ MORE

“The company is hopeful of relief and in the absence of the same, has provided for an additional amount aggregating Rs 28,450 crore as a charge for the quarter,” Airtel said.

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