Vodafone Idea hits new low, trades near rights issue price of Rs 12.5

Shares of Vodafone Idea hit a new low of Rs 13 apiece, plummeting 10 per cent intra-day on the National Stock Exchange (NSE) on Tuesday, due to heavy volume trade. The stock of the telecom services provider was trading close to its rights issue price of Rs 12.50 per share.

At 01:50 pm, Vodafone Idea was trading 5 per cent lower at Rs 13.70 on the bourse, as compared to a 0.65 per cent rise in the Nifty50 index. As per data available on the exchanges, a combined 159 million shares changed hands on the counter of the NSE and BSE during the day.

The telecom major’s net debt-exclusive of deferred spectrum liability-inched up to Rs 1.18 trillion between January and March, 2019 from Rs 1.15 trillion till December 2018.

“The gross debt at the end of FY19 was Rs 1.25 trillion, including deferred spectrum payment obligations of Rs 90,680 crore payable to the government. Cash and cash equivalents were Rs 7,550 crore resulting in net debt of Rs 1.18 trillion,” Vodafone Idea mentioned under their financial result highlights.

According to analysts at JP Morgan, while the company remains highly leveraged, its strategy to improve its broadband and 4G customer base through continued capital investments in network capacity and coverage remains under risks emanating from lack of free funds. The entire telecom sector is engulfed in a price war as RJio continues its momentum to grab market share.

Given its extremely high leverage and negative free cash flow generation post interest payments, Vodafone Idea’s “ability to withstand a sustained onslaught of RJio is quite limited”.

“Despite potential for significant realizations from synergies obtained from the merger between the two entities, Vodafone Idea will continue to burn capital at a rapid pace with an imminent need to raise equity capital or divest assets potentially by end of June quarter (Q1FY20),” analysts at JP Morgan said. The brokerage firm has ‘underweight’ rating on the stock with December 2019 target price of Rs 14.30 per share.