Voda Idea rallies 19%, hits highest level since Jan 2022 on heavy volumes

Shares of Vodafone Idea (Vi) surged 19 per cent on Friday to hit the highest level in nearly 2 years. The stock touched Rs 15.80 on the BSE on heavy volumes. This was its highest level since January 10, 2022.

The stock of the telecom services provider surpassed its previous high of Rs 15.07 touched on November 20. The average trading volumes on the counter jumped almost three-fold today.

A combined 1,321 million equity shares, representing 2.7 per cent of total equity of Vi, changed hands on the NSE and BSE till 01:55 PM. In comparison, the S&P BSE Sensex was down 0.31 per cent at 72,187.

Meanwhile, in the past six months, the stock price of Vi has more than doubled or zoomed 113 per cent. In the December quarter, it rallied 35 per cent, while in the September quarter, the stock soared 57 per cent.

Institutional Investors including foreign portfolio investors (FPIs) and mutual funds (MFs) have increased their holdings in Vi to 4.13 per cent in September quarter (Q2FY24).

They held 2.89 per cent stake in the company at the end of June quarter (Q1FY24) and 2.69 per cent at the end of March quarter (Q4FY23).

However, retail investors holding in Vi decreased to 10.04 per cent in Q2FY24 from 11.53 per cent in Q1FY24 and 11.77 per cent in Q4FY23, shareholding pattern data showed.

Meanwhile, in Q2FY24, Vi’s earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 3 per cent from Rs 4,157 crore in Q1FY24 to Rs 4,283 crore and EBITDA margins were at 40 per cent from 39 per cent in previous quarter.

Indian telcos’ EBITDA margins improved sharply in FY19-23, led by tariff hikes, Ind AS 116 implementation, change in the interconnection usage charge (IUC) regime, lower spectrum usage charge (SUC) charges and operating leverage.

Analysts at Kotak Institutional Equities (KIE) believe there is a case for sharper tariff hikes in the medium term, given a drag on R-Jio’s return ratios from potentially higher depreciation and interest on recently acquired spectrum.

Among key expenses, network opex has been on a rising trend and is likely to rise further on 5G rollouts. Customer acquisition costs have risen sharply, despite muted industry net adds.

The scope of further margin expansion from lower regulatory levies/access charges appears limited to us, the brokerage said in a telecom sector report.

According to analysts, Vi has been rationalizing its tower count over the past few years and would likely have exited higher cost towers.

In its base case scenario, KIE assumes the status quo (3+1 market construct) to continue beyond 2HFY26, with the govt allowing some relief (deferral/conversion of spectrum and AGR dues) to ensure Vi’s survival and a 3+1 (or 2+2) market construct.

However, given the significant gap in 4G/5G coverage with peers, it expects Bharti Airtel and R-Jio to continue gaining market share at Vi’s expense.

“In our second bull case scenario, we assume a much sharper tariff hike, with ARPU reaching Rs 300 by FY27 (versus FY30 in our base case) for Vi to be able to partly service govt dues post-moratorium and a waiver/conversion for past dues. In a waiver, the company could continue as a going concern, with the current promoters or govt could look to merge Vi with public sector telcos,” its report said.

Furthermore, it believes rather than a sharp hike in headline tariffs, telcos could implement this by changing the tariff construct from unlimited data plans to bulk data plans (effectively monetizing higher data usage).

However, analysts believe sharper tariff hikes would benefit Vi’s competitors more and it would continue to lose market share.