Despite positive news flow, analysts still cautious on Voda Idea stock

Shares of Vodafone Idea (Vi) hit a fresh 52-week high of Rs 16.40, surging 15 per cent on the BSE in Thursday’s intra-day trade amid heavy volume. In comparison, the S&P BSE Telecom index dipped 0.46 per cent in intra-day trade.

The rally on Thursday came on the back of reports that Vodafone Idea has managed to raise funds for repayment of interest to bondholders amounting to around Rs 6,000 crore starting December 13 till March 2022. READ ABOUT IT HERE

The markets took the development positively and catapulted the stock to its highest level since May 7, 2019 on Thursday, surpassing the previous high of Rs 15.88 hit on December 6, 2021. In the past three weeks alone, Vi has zoomed 64 per cent at the bourses after the company increased its prepaid tariff by 20-25 per cent from November 25, 2021. The company said the new plans will start the process of average revenue per unit (ARPU) improvement and help address the financial stress faced by the industry.

“While the tariff hike would offer a welcome relief for Vi, it is just the first step in the right direction. It still has a long way to go before it becomes competitive,” said Balaji Subramanian, an analyst tracking the sector at IIFL.

Though the development has seen Vi gain ground and hit a two-year high at the bourses, analysts still remain cautious and suggest investors stay away from the stock given the inherent risks. 

“VIL may find it difficult to reverse the loss of subscribers as it is expected to remain behind Bharti Airtel and Reliance Jio on pan-India network coverage and capabilities (4G/5G) as well as service offerings such as subsidised handsets or bundled plans,” wrote Tarun Lakhotia and Hemang Khanna of Kotak Institutional Equities in a recent report.

Vodafone Idea's market share loss, according to reports, has continued in the first half of fiscal 2021-22 (H1-FY22) though the pace of market share loss has moderated, particularly in its key markets. Analysts say the revenue market share losses for the company are being driven by its largest markets. During H1-FY22, 47 per cent of Vodafone Idea's 2.4 percentage point (ppt) market share loss came from its Top-3 markets, which form 34 per cent of its revenues.

During the second quarter of the current fiscal (Q2-FY22), sector revenues grew 12 per cent year-on-year (YoY), led by urban markets. While Bharti and Reliance Jio gained 150-230 basis points (bps) revenue market share in H1-FY22, Vodafone Idea lost 240bps share, with its top 3 markets forming 47 per cent of its market share loss, reports suggest. 

“The company lost 4.7ppt market share in Maharashtra, 2.5ppt market share in Gujarat, and 2.2ppt market share each in Kerala in H1. Notably, Bharti Airtel has seen the highest growth in two of these three markets, which is partly a reflection of consumer choice and Bharti's spectrum acquisition in these markets in March this year,” wrote Akshat Agarwal and Ankur Pant of Jefferies in a recent note.

A K Prabhakar, head of research at IDBI Capital, too, remains cautious on the stock and says Bharti Airtel is a better bet in the telecom space.

"Though the developments are positive, including the hike in tariffs, one needs to understand that the Vodafone Idea has a large debt to repay. The company has raised funds and that's why the stock has rallied. Till the time VIL shows a turnaround performance, I remain cautious on the stock. The company has managed to defer the payment. Whether they will be able to pay up, I have my doubts. Bharti Airtel is a better bet than Voda Idea," he said.