As Vodafone Idea continues to suffer massive loss of subscribers month after month, brokerage firm CLSA is of the view that the telecom stock could slip more than half to ₹5.
The stock of Vodafone Idea, which of the 17 analysts that have coverage on it no one recommends buying, was trading over a percent lower at ₹12.77 on BSE at 9:40 am on April 10. While 14 analysts have a sell call on the stock, three suggest holding it.
CLSA has a sell call on the stock with a target price of ₹5, implying the brokerage expects it to decline almost 61% from the closing price of April 9.
The over 60% lower target price comes against the backdrop of Vodafone Idea losing 1.7 million subscribers in the past 12 months, which the brokerage says is due to low capex of ₹1,300 cr or $0.2 billion over the first nine months of FY24.
However, an equity raise of up to ₹20,000 crore is pending which will boost capex. Separately, the firm’s board has also approved the preferential allotment of ₹2,080 crore to a Birla Group entity and is increasing the firm’s authorised share capital to ₹1 lakh crore.
It will issue up to 139.5 crore equity shares to Oriana Investments Pte. Ltd., an Aditya Birla Group entity, at an issue price of ₹14.87 per share, including a premium of ₹4.87 per share.
The company will seek shareholders’ approval at an extraordinary general meeting on May 8 on the proposals.
Vodafone Idea will have to pay the annual spectrum and adjusted gross revenue (AGR) payments when they become due in the financial year ending March 2026.
This may lead to a cash crunch for the company unless the government converts debt principal to equity at the end of the moratorium period, CLSA said.
Adjusted gross revenue is a fee-sharing mechanism between the government and telecom companies who migrated from the ‘fixed license fee’ model to a ‘revenue-sharing fee’ model in 1999. In doing so, telcos had to share a percentage of their AGR with the government.
In October 2023, Bharti Airtel and Vodafone Idea approached the Supreme Court against the Adjusted Gross Revenue (AGR) levy challenging alleged calculation errors in determining the AGR dues they owe.
The apex court agreed to consider the matter and conduct an open court hearing. However, a specific hearing date is yet to be confirmed.
The AGR issue has been under litigation since 2003. After years of litigation, the Supreme Court (SC) delivered its final judgment in October 2019 and upheld the AGR definition as prescribed by the government and also the demand of ₹1.47 lakh crores against the telecom companies.
Following the SC judgment, Voda Idea was burdened with an AGR obligation of ₹58,254 crore, while Bharti Airtel had AGR dues of ₹43,980 crore.
