March 4, 2021

Analysts divided on Voda Thought’s prospects, see volatility ruling inventory

Mumbai: Analysts are divided on the prospects of Vodafone Thought inventory after the nation’s third-largest telecom operator reported a staggering Rs 73,878 crore internet loss in fiscal ended March – the very best ever by any Indian agency – after it provisioned for Supreme Courtroom mandated statutory dues.

The agency, which has to pay Rs 51,400 crore dues after the apex court docket ordered the non-telecom revenues to be included in calculating statutory dues, mentioned the legal responsibility has “forged vital doubt on the corporate’s means to proceed as a going concern”.

In response, shares of Vodafone Thought dropped 4.33 per cent to Rs 10.16 on Wednesday. The inventory has gained practically 65 per cent for the yr to this point.

Vodafone Thought’s subscriber base eroded to 291 million in March quarter from 304 million within the December quarter. Common income per person (Arpu) for This fall improved to Rs 121, versus Rs 109 in Q3FY20, pushed by the pay as you go tariff hike efficient from December 2019.

Some imagine the corporate will handle to sail by way of.

“The corporate will handle to outlive. In case you see the numbers, their EBITDA has met our expectations. Total income progress was additionally passable on a quarter-on-quarter (QoQ) foundation. They’ve nonetheless managed to maintain their post-paid subscriber base,” mentioned Abhimanyu Sofat, head of analysis at IIFL Securities.

In response to him, the placing optimistic was the corporate’s Arpu enhance of 11 per cent QoQ to Rs 121.

“With the anticipated monetization of Indus Towers, they’ll now see much less stress. Their capex has additionally been decrease than what they’d mentioned earlier,” mentioned Sofat, including that IIFL has a ‘purchase’ ranking on the inventory, with a goal worth of Rs 12.

Vodafone Thought maintained that it plans to monetise its 11.15 per cent stake in Indus Towers on completion of the Indus-Infratel merger. It mentioned there isn’t a materials influence of the pandemic on its general efficiency, nevertheless it continues to watch the scenario carefully.

On AGR dues, the corporate mentioned that it has recognised a complete estimated legal responsibility of Rs 46,000 crore.

“If Vodafone had been to outlive, I’d quite play the telecom story by way of Bharti Infratel, which stands to profit from having a number of gamers within the business,” mentioned Sofat.

CLSA in the meantime reiterated its purchase ranking, and raised the goal worth on the inventory to Rs 14 from Rs 12 earlier.

“With an increase in Ebitda, gearing will fall to c.6x by FY22CL. We elevate our FY21-22CL forecasts by round 1 per cent and see additional upside, with potential sector flooring tariffs. With the inventory’s risk-reward nonetheless beneficial, we reiterate our purchase advice and carry our goal worth from Rs 12 to Rs 14,” CLSA analysts mentioned in a word.

Not everybody was as optimistic although as doubt over the corporate’s survival lingered.

Credit score Suisse mentioned that whereas it thinks Vodafone Thought can handle its money movement wants until FY22, primarily on account of a two-year moratorium on deferred spectrum debt, the brokerage believes the corporate might discover it difficult to service AGR dues in case tenure for staggered cost is lower than 10 years.

“Past FY22 (when annual spectrum debt compensation of round Rs 157 billion resumes), we imagine the corporate’s viability will stay beneath a cloud with out sturdy operational enchancment and vital fairness infusion,” Credit score Suisse analysts mentioned.

Axis Capital maintained that the ranking for the inventory was “beneath evaluate”, whereas Motilal Oswal positioned it beneath evaluate.

“We anticipate Voda Thought’s inventory to stay unstable as a consequence of excessive leveraging and AGR overhang,” Axis Capital mentioned in a word, including that it’s rising its FY21E/22E EBITDA by 1.6 per cent because it adjusts for margin beat.

“We see pressing want of additional ARPU enchancment/authorities aid to sort out the monetary stress. Therefore, we preserve the inventory Beneath Overview. Readability on AGR penalty/authorities aid/deleveraging is a key set off,” the brokerage mentioned.

Motilal Oswal echoed Axis Capital’s views and mentioned the inventory could also be extremely unstable to media experiences on regulatory/judicial outcomes, with an unsure outlook.

“In such an setting, we place the inventory beneath evaluate till we get readability on the corporate’s enterprise continuity,” the brokerage mentioned.

Ajay Bodke, CEO-PMS at Prabhudas Lilladher continues to be cautious on the inventory.

“They’ve misplaced quite a lot of subscribers, whereas Reliance Jio has gained a significant chunk adopted by Bharti Airtel. The worth of the franchise can diminish considerably if the precipitous slide within the variety of subscribers continued unabated. So, they should put in place methods to shortly reverse this,” mentioned Bodke expressing his issues.

“The overhang of the AGR dues court docket case has not vanished as but. They don’t seem to be but out of the woods. I proceed to be cautious on the inventory. The chance to the decision is that if one of many international tech giants resembling Google had been to take a considerable minority stake,” he mentioned.

“That might make traders rethink their rationale,” Bodke added.

Deven Choksey, Group Managing Director, KR Choksey Funding Managers, too was involved concerning the survival of the enterprise.

“I believe they’ll require a big quantity of effort and investments to convey the enterprise again on observe. The probabilities of mobility-based enterprise mannequin will in any other case have a really small probability to prosper,” mentioned Choksey.

“I’m extra involved concerning the long-term visibility of the enterprise,” he added.