This Telecom Stock Zooms 58% in 30 Days. Here's the Reason Behind its Rally

The stock of third largest telecom service provider in India, Vodafone Idea (Vi), has been in the spotlight for quite some time now.

In past one month, shares of Vodafone Idea has zoomed 58%, while in the last three days the counter has shot up by 18%.

Vi shares seem to be on the rise, as the company's prospects appear to be improving to investors as a result of a slew of recent events.

Vodafone to repay bonds on schedule

According to media reports, the company has managed to raise funds for repayment of interest to bondholders on time.

Bondholders of Vodafone Idea will receive their interest in time on the due date of 13 December 2021 as the company managed to raise funds for the repayment.

The firm has to pay Rs 60 bn to its bondholders beginning 13 December 2021 till March next year and plans to use its own cash flows and bank funds to repay its bond holders.

It had also fixed the record date for the next tranche of 7.77% unsecured redeemable non-convertible debentures on 20 December 2021 and will pay the interest on 4 January next year.

Tariff hike to boost operating profits

After nearly two years, the long-awaited countrywide telecom tariff hikes have arrived.

Bharti Airtel and Vodafone Idea have increased their prepaid charges by 20-25%.

The new tariffs kicked in for Vodafone Idea customers from 25 November 2021, a day before Bharti Airtel's hike comes into effect.

The company said the new plans will start the process of average revenue per unit (ARPU) improvement and help address the financial stress faced by the industry.

Vodafone Idea's gross debt as of 30 June 2021 was Rs 1.9 tn, comprising of deferred spectrum payment obligations of Rs 1.06 tn and an adjusted gross revenue liability of Rs 621.8 bn.

Eight top banks led by SBI have large exposure to the firm. In terms of percentage to book, IDFC First Bank, YES Bank and IndusInd Bank top the list.

The impact on ARPU

Indian telecom companies are now strongly focusing on improving ARPU, while retaining their active subscriber base.

The hike will help in improving revenues and ARPUs of Bharti Airtel and Vodafone Idea.

For the quarter ending 30 September 2021, Airtel and Vodafone Idea's ARPU stood at Rs 153 and Rs 109.

Vi has the lowest ARPU among telecom companies. That apart, Vodafone Idea's market share loss has continued in the first half of fiscal 2022.

However, the company has been slowly and steadily recovering its ARPU from its current Rs 109. Before Jio, the company's ARPU stood at Rs 170 in 2017.

Going forward, we could see significant rise in its ARPU due to major reforms taking place in telecom industry and are expected to stay on the rise after being kept low for a long time by Jio.

Government's relief package

Back in September 2021, in a bid to provide relief to the stressed telecom sector, the government announced a crucial relief package with a string of reforms which is expected to help the struggling incumbent operators such as Vodafone Idea and Bharti Airtel.

The centre had allowed 100% foreign direct investment (FDI) into the telecom sector through the automatic route, approved a four-year moratorium on dues of telecom service providers, and also changed the definition of adjusted gross revenue (AGR), among some other moves in a bid to support the cash-strapped sector.

According to Telecom Minister Ashwini Vaishnaw, these structural reforms are aimed at fostering healthy competition in the sector to provide choice to customers and pave the way for the entry of new players.

Management's take on recent telecom reforms and 5G services

Vodafone Idea's chairman Himanshu Kapania said the recent telecom reforms have changed global investors' perception about the government now viewing the sector as a key infrastructure provider instead of purely a revenue generator for the national exchequer.

He added,

• Global investors are acknowledging the shift in the government's past approach of treating telecom as a revenue generator to the new policy direction of treating it as an infrastructure provider for digital services, paving the way for India's vision of becoming a top economy by 2030.

Recently, telecom players in India have stressed the need for affordable spectrum and a further hike in tariffs as they prepare to roll out 5G services next year.

According to the Telecom Regulatory Authority of India (Trai) estimate, an investment of US$60-70 bn would be required to implement 5G services.

Vi's managing director and chief executive officer (CEO) Ravinder Takkar said,

• Access to adequate low-cost spectrum and easy payment terms are essential for companies to plan their investments; the government must decide on these issues on priority.
  
  Our focus on leveraging new technologies and partnerships has led us to become the first telecom company in India to develop a wide range of 5G-use cases.
  
  We have embraced cloud for our core network and continue to upgrade our transport and radio networks to cater to the huge traffic demand which will arise from billions of connected devices in the future.

Vi CEO said extra steps are needed to make the telecom industry sustainable. These include the sale of spectrum at affordable rates, rationalisation of taxes, and reduction in litigation.

Vodafone Idea continue to lose wireless subscribers

Bharti Airtel added 2.7 lakh mobile subscribers in September even as larger rival Reliance Jio lost 19 m users and Vodafone Idea lost 1.8 m subscribers during the month.

The wireless tele-density in India decreased from 86.9% at the end of August 2021 to 85.2% at the end of September 2021.

Wireless subscription in urban areas decreased to 637.9 at the end of September 2021 and that in rural areas fell to 528.1 during the same period.

Reliance Jio constitutes 55.02% market share in the broadband segment, Airtel has 25.32% market share, Vodafone Idea come in third with 15.19% market share.

How the stock markets reacted to Vodafone Idea

Shares of Vodafone Idea opened the day at Rs 16.7 on the BSE and Rs 16.6 on the NSE.

At the time of writing, the company's shares were trading up by 0.9% on BSE.

The share touched its 52-week high of Rs 16.8 and 52-week low of Rs 4.6 on 9 December 2021 and 17 August 2021, respectively.

Over the last 30 days, the share price is up 58%. Over the last one year, the company's share price is up 67.5%.

About Vodafone Idea

Vodafone Idea is an Aditya Birla Group and Vodafone group partnership. It's among India's leading telecom service provider.

The company provides pan India voice and data services across 2G, 3G, and 4G platforms.

On 31 August 2018, Vodafone India merged with Idea Cellular, to form a new entity named Vodafone Idea.

Vodafone currently holds a 45.1% stake in the combined entity and Aditya Birla Group holds a 26% stake.

On 7 September 2020, Vodafone Idea unveiled its new brand identity, 'Vi' which involves the integration of the company's erstwhile separate brands 'Vodafone' and 'Idea' into one unified brand.

The company is developing infrastructure to introduce newer and smarter technologies, making both retail and enterprise customers future ready with innovative offerings.

For more details about the company, you can have a look at Vodafone Idea's factsheet and quarterly results on our website.

You can also compare Vodafone Idea with its peers.

Vodafone Idea vs Bharti Airtel

Vodafone Idea vs Tata Communications

Vodafone Idea vs MTNL

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