Is Vodafone falling out of the ranks of the Big 3 telcos?
Vodafone Idea’s stock has seen massive declines in 2022 as the portfolio of its investors have been painted red.
2021 was ending at a great note for the stock as it had surged over 150% in a span of 4 months. The stock was witnessing high volumes on the bourses as a few billion shares were being traded on some days! Investor sentiment was positive as they saw an entry for record gains, but 2022 smashed all expectations.
The stock fell 19% in a single day in January 2022 when the company announced the conversion of its AGR dues and interest into equity, which made the government the largest shareholder in the telecom, holding 35.8% stake in the company!!
Since the crash, the stock has been unable to recover as it has been hitting consecutive lows. In April, the stock fell for almost 20 consecutive days and lost 28% of its value during the same period!!
However, there was some relief for the stock as it stopped declining after that and began trading in a range from May 2022 till November 2022. Unlike other companies, the stock did not show much reaction to the announcement of its results. However, the stock briefly breached its support level (marked in blue) in December 2022.
Vodafone Idea, however, is the only telecom losing value. Bharti Airtel, Vodafone Idea’s direct competitor and the second largest telecom of India, has had a comparatively good year at the bourses. Although the stock saw some corrections, the stock has registered a YTD growth of 17.72% in 2022.
What is the future outlook for Vodafone Idea?
Fundamentally, Vodafone Idea is in a bad situation. Firstly, the stock is in a bad financial condition. As per the results pertaining to the quarter ended in September 2022, the company had a net loss of Rs 7,595.5 crores!! Its revenues had reported significant growth on a yearly basis and marginally on a sequential basis. However, its EBITDA margin declined to 38.6% while its net losses widened 6.5% on a yearly basis.
The balance sheet as on 30 September 2022 showed that the company had current liabilities of Rs 61,612.2 crores outstanding against current assets of only Rs 14,543.8 crores!! The company’s current liabilities are 5 times more than its current assets, clearly depicting how distressed and how deep in debt the company is.
Secondly, the company’s financial conditions have led to a degradation in the quality and a delay in the release of new products. As such, the company has been losing customers consecutively for the past 12 months!! In November 2021, the company had a wireless subscriber base of 267.13 million subscribers, and by October 2022, the same had declined to 245.62 million! Currently the telecom is only left with 21.48% of the Indian wireless telecom market share and 2.65% in the wireline segment!! It has the lowest ARPU (Average Revenue Per User) in the race of the Top 3, only Rs 133.
Vodafone Idea’s future looks uncertain as the company now has a market share of less than 25%! At such low market share levels, the company will not be able to influence pricing effectively as the larger players will end up setting the price, making the company unable to alter prices of its own services. Reducing the prices is not an option since the company is already incurring losses & a substantial spike over the existing price range might end up sending more subscribers away from it.
Moreover, the company is yet to launch its 5G services. Since the telecom sector is now highly dependent on capex, Vodafone is in an even more difficult position. Where Airtel and Jio have already launched their 5G services and Jio has already begun work to launch its 5G SA network, Vodafone is yet to open a 5G base station!!
Technically, the stock recently breached its support level at Rs 8.15 (marked in blue) but is making its way back to reclaim the mark. It is trading above the 5-day moving average but is trading below the 20,50,100 and 200 day moving average. RSI is near 44, indicating that the stock is neither overbought, nor oversold.
Although the stock is fairly above its lifetime low of around Rs 3 per share, will the stock ever be able to recover its IPO price of Rs 50.55 or its lifetime high of Rs 120? What awaits the company and its stock??
Report by Jobaaj Group.