Vodafone Idea Stock Drops 33% in September, ₹34,000 Crore Market Cap Erased

Vodafone Idea Ltd stock fell by more than 33% in September, the steepest fall in a period since October 2019. The market capitalisation of the company dropped over ₹34,000 crore during the month. The stock had slipped to ₹10.36 per share by 30 September, against the opening of ₹15.64. This saw its market cap shrink to ₹72,000 crore from ₹1.06 lakh crore.

Vodafone Idea stock was trading 0.68% higher at ₹10.43 on the National Stock Exchange (NSE) at 11:15 am IST.

The Supreme Court had declined to consider the telecom firms' plea to have a revaluation of their adjusted gross revenue liabilities. Alok Sharma, counsel for Vodafone Idea, pleaded for three adjustments: rectification of calculation errors in the AGR demand, capping penalty at 50% of the deficit, and reducing penalty interest from 14% above the State Bank of India's prime lending rate to 2% above the State Bank of India's prime lending rate.

According to analysts from IIFL Securities, without judicial intervention, the strain on Vodafone Idea's finances may worsen. Even a tiny advantage for Bharti Airtel through market share gain could be possible. The debt-raising push which is currently under way by Vodafone Idea to support capital expenditure remains doubtful because of this adverse verdict.

On September 6, Goldman Sachs reiterates a pessimistic call on Vodafone Idea, citing continuing market share erosion despite recent capital infusions. Of course, the brokerage shares its bullish conviction regarding how close a link is there between capital expenditure and market share; Vodafone Idea can lose another 300 basis points over the next 3-4 years as competition is likely to outspend it by half in capex.

If AGR dues are capped at 35%, and tariffs increase gradually without immediate repayment by the government, Goldman Sachs expects the share price to be ₹19. It was in July that the Supreme Court accepted the petition filed by Vodafone Idea against its March 2019 judgment on government dues.

Recently, the company, Vodafone Idea, has secured a large order with Nokia, close to ₹13,500 crore, for equipment for the next three years, part of its 4G network upgrade and 5G rollout.

Insiders say that Nokia will supply 4G and 5G network equipment for nine circles. The Finnish company will provide its 5G AirScale technology, which will also upgrade the current 4G network of Vodafone Idea with advanced multiband radios and baseband equipment to support 5G.

This forms part of an overall strategy by Vodafone Idea to invest over ₹3.6 billion over the next three years in 4G and 5G gear from the likes of Nokia, Ericsson, and Samsung. The partnership will look to enhance the competitiveness of Vodafone Idea against bigger rivals like Reliance Jio and Bharti Airtel, while also trying to slow the rate of customer churn.

Under the new contract, Nokia will provide base station equipment for 4G and 5G networks across regions of Mumbai, Gujarat, Andhra Pradesh, Haryana, UP-East, UP-West, West Bengal, Kolkata, and Tamil Nadu/Chennai.

Meanwhile, Vodafone Idea is finalizing a commercial deal with another major supplier Ericsson as it tries to finalize the prices and terms of payment. According to informed sources, Ericsson had refused to agree due to this reason as letters of credit (LCs) from Vodafone Idea were not received by the firm, which act as payment guarantees. A Vodafone Idea spokesperson confirmed agreements have been finalized with two vendors, but is yet to get the final signing done with the third.

For Vodafone Idea, the commercial arrangement process with Ericsson was under immense pressure of deliveries starting in early November. CEO Akshaya Moondra recently told analysts that the company would raise its rest ₹35,000 crore in the next two months.

As of reporting, neither Nokia, Ericsson, nor Samsung have responded to queries. Industry insiders inform though that Ericsson and Samsung are holding out for clarity on final vendor allocations for Delhi and Punjab markets-thought to be very valuable for their profit-making potential.

If all the negotiations fall into place soon, Ericsson will care for the supply of 4G and 5G equipment in nine circles, including Rajasthan, Himachal Pradesh, Jammu & Kashmir, Karnataka, Maharashtra, and the Northeast. A win in the Delhi circle will bring Ericsson's market share up to 10 circles. Samsung has won tenders in Bihar and Odisha but remains a strong contender in the Delhi and Punjab circles.