Vodafone-Idea stock hits all-time low; more downsides in coming days

While the market share loss was 50 basis points in July, further losses will bring its subscriber market share below the 40% mark

Vodafone Idea hit an all-time low of Rs 36.80 on worries of weak September quarter earnings, additional subscriber losses and the question of funding additional capital expenditure given the high debt and loss-making operations.

What will make the situation worse for the company is the sharp depreciation of the rupee which increases outgo on foreign-denominated loans as well as equipment imports. 

The near-term trigger for India’s largest telecom operator with a subscriber market share of 40.6 per cent would be the September quarter’s numbers. The merged entity is expected to report a single-digit operating profit margin of 9.2 per cent compared to the year-ago figure of 20.1 per cent, according to analysts at Kotak Institutional Equities. The impact on revenues is largely on account of weak Idea Cellular metrics.

While the consolidated entity (one month of Vodafone numbers) will see a revenue growth of just 1.1 per cent over the year-ago quarter, Idea Cellular’s revenue decline is expected to be a sharper 26 per cent. In addition to the higher share of rural subscribers which are shifting to Jio and attractive offers to counter the new entrant, average revenue per user for the consolidated entity and for Idea is expected to slip below the Rs 100 mark.

The other worry for the Street is the fall in subscriber numbers. The company has been losing market share consistently over the last three months with July loss pegged at 2.9 million active subscribers. In comparison, Bharti Airtel lost 0.9 million subscribers. 

While the market share loss was 50 basis points in July, further losses will bring its subscriber market share below the 40 per cent mark.

Finally, the Street will look at the ability of the company to retain and gain broadband subscribers given that its debt position is the worst among the major players. 

Gross debt of the company stands at Rs 1,285 billion with net debt to Ebidta at around 10 times. Interest cost for the September quarter is almost three times its operating profit estimate of Rs 7 billion. 

This could aggravate further given the need to match rivals on the capex front and play catch up on the 4G rollout.