Vodafone Idea shares fall over 3% after Q3 earnings; should you buy, sell or hold?

The share price of Vodafone Idea declined almost 4 percent on Monday after the debt-ridden telecom operator reported its December quarter earnings below analysts' estimates, leading brokerages to maintain a bearish outlook on the stock.

Vodafone Idea on Saturday reported narrowing of consolidated loss to Rs 4,532.1 crore in the third quarter ended on December 31, 2020. The company had posted a loss of Rs 6,438.8 crore in the same quarter a year ago.

The company’s revenue from operations declined by 1.7 percent to Rs 10,894 crore from Rs 11,089.4 crore, YoY. However, the revenue rose by 1 percent sequentially. The average revenue per user (ARPU) rose to Rs 121 in the December quarter from Rs 109 in the September quarter.

Vodafone Idea narrows loss to Rs 4,532 crore in Q3

EBITDA in Q3FY21 was at Rs 4,286.2 crore as against Rs 3,420.5, while EBITDA margin rose to 39.3 percent from 30.8 percent, YoY.

"In the third quarter of financial year 2021, we improved subscriber retention and operating performance, supported by Vi GIGAnet. We remain focused on executing our strategy, and our cost optimization plan remains on track to deliver the targeted savings," Vodafone Idea MD and CEO Ravinder Takkar said in a statement.

Vodafone Idea’s subscriber base in the December quarter declined to 269.8 million from 304 million in the same quarter last fiscal. However, its 4G subscribers rose to 109.7 million from 104.2 million, YoY.

Its broadband subscriber base also increased to 120.8 million in Q3FY21 from 12.4 million in Q3FY20.

Here’s what brokerages have to say on the company’s Q3 performance:

"Besides AGR, VIdea is reeling under enormous debt led by spectrum payment liabilities at Rs 1,171 billion. With the awaited court verdict on AGR and sector tariff hikes, we retain our 'Underperform' recommendation and Rs 12 target price," CLSA said.

The global research house maintained an 'Underperform' rating and a target price of Rs 6 per share.

"There is a minor miss in Q3 earnings, ex-one-offs. The pace of subscriber loss is moderating but market share loss continues. Leverage remains unsustainable at 25x and underinvestment continues. It needs meaningful capital infusion on an urgent basis," Credit Suisse said.

"There is stability in operating trends, but performance is still below the peers. The potential market share stabilisation and increase in 4G net additions will bode well. ARPU increase also bodes well," UBS said.

As of now, the brokerage continues to see liquidity challenges for the company. UBS maintained a 'Neutral' call with a target price of Rs 10 per share.

"The one-time capital raise would not be a sustainable solution to its balance sheet stress. EBITDA would need to be 4x versus December quarter levels for the company to be FCF neutral," the brokerage added.

Goldman Sachs maintained a 'Sell' call with a target price of Rs 3.20 per share.

"Vodafone Idea is showing some improving trend with lower subscriber loss, better gross adds, higher 4G net adds and rise in data usage, but it is still not enough. With AGR case behind, VIL will need to bounce back stronger, with limited resources, to remain a going concern," ICICI Securities said.

ICICI Securities maintains its estimates and a 'Sell' call on the stock and a target price of Rs 5.

 

At 11:50 am, the shares of Vodafone Idea were trading 2.47 percent lower at Rs 12.23 apiece on the BSE as compared to a 1.03 percent gain on the benchmark Sensex.