The SC order makes operational sustainability more uncertain, particularly for Vodafone Idea, say analysts
The telecom stock has been under severe selling pressure over the last few years as the industry challenged the policy changes, slumping 40% so far in 2020 and 73% in 2019
Shares of Vodafone Idea crashed 23.21% to hit a low of ₹3.44 apiece on Friday after the Supreme Court asked telecom companies to pay up the adjusted gross revenue (AGR) dues to the department of telecommunications (DoT).
The telecom stock has been under severe selling pressure over the last few years as the industry challenged the policy changes, slumping 40% so far in 2020 and 73% in 2019.
Analysts are concerned that the Supreme Court order directing telecom companies to settle pending adjusted gross revenue dues by 17 March makes operational sustainability more uncertain, particularly for Vodafone Idea.
“Its ability to pay over ₹55,000 crore by the stipulated date is uncertain, given its current financial flexibility. Airtel needs to pay ₹35,500 crore, and they have been able to raise funds in the recent past. We expect telecom tariffs to rise further by at least 20-25% in the near- to medium-term to support payments of such large dues to the department of telecommunications," said an analyst, requesting anonymity.
To be sure, Vodafone Idea’s shares have lost 88% since the merger between Vodafone India Ltd and Idea Cellular Ltd in August 2018.
Vodafone Idea Ltd narrowed its net loss to ₹6,438.8 crore in the December quarter from the ₹50,922 crore loss in the September quarter, having accounted for most of the liabilities related to adjusted gross revenue in the preceding quarter itself.
In contrast, Bharti Airtel shares gained 58.85% in 2019, and are up 23.56% so far in 2020.
On Friday, Bharti Airtel ended at ₹565.10 apiece, up 4.69% or ₹25.30.
Bharti Airtel’s December quarter results were operationally strong with 5.5% improvement sequentially in average revenue per user (ARPU) and 3.6 million quarter on quarter (q-o-q) subscriber additions.
According to analysts at Edelweiss Securities, Bharti Airtel is well placed to honour its adjusted gross revenue liabilities without compromising its abilities to make future network investments.
“Bharti’s Q3 numbers demonstrate its ability to garner high value customers which positions it well for further tariff hike…Bharti, however, is well placed for the eventuality with its network investments and strong balance sheet. The stock is trading at 7.7 times FY21 EV/Ebitda (enterprise value/earnings before interest, taxes, depreciation and amortization)," said Edelweiss in a note on 5 February.
Analysts at SBICap Securities Ltd think Bharti Airtel will gain from a possible Vodafone Idea shutdown as its subscriber market share will rise to 40%, even if gets 40% of Vodafone Idea’s subscribers.
“That said, the chances are that Bharti will end up having an even larger share as only 45% of Vodafone Idea’s total subscriber base are data subscribers and the residual are 2G subscribers," said SBICap Securities Ltd in a note on 11 February.
Currently, Vodafone Idea has five buy ratings, 10 holds and seven sell ratings by analysts on Bloomberg.
Bharti Airtel, on the other hand, has 26 buys, three hold and one sell ratings by analysts on Bloomberg.