Vodafone Idea Shares Plunge 24% in Two Days, Fall Below ₹10 Amid AGR Ruling

Vodafone Idea’s stock has taken a significant hit, plummeting by 24% over the last two days and slipping below the ₹10 mark on September 20, 2024. This dramatic decline comes in the wake of the Supreme Court of India’s decision to uphold a substantial demand for Adjusted Gross Revenue (AGR) payments from telecom companies, including Vodafone Idea. The ruling has sent shockwaves through the market, raising concerns about the financial stability of the already debt-laden telecom operator.

Full Details on Vodafone Idea’s Share Price Decline

On Thursday, September 19, Vodafone Idea shares fell by nearly 20%, closing at ₹10.33 on the Bombay Stock Exchange (BSE). The stock continued its downward trajectory on Friday, hitting a 52-week low of ₹9.79 per share. The recent downturn follows a Supreme Court ruling that rejected petitions from Vodafone Idea and other telecom firms seeking relief from previous AGR calculations that included non-core revenues. The court’s decision reaffirmed that these companies owe a staggering ₹70,320 crore in total dues, which includes interest and penalties.

The Supreme Court’s ruling is based on its earlier 2019 judgment that mandated the inclusion of all revenue streams—both core and non-core—in calculating AGR dues owed to the government. This ruling has left Vodafone Idea with a massive financial burden as it struggles to maintain operations amidst fierce competition in the telecom sector.

Analysts have noted that this latest ruling could severely impact Vodafone Idea’s ability to raise funds and meet its financial obligations. The company has already posted losses for four consecutive quarters, amounting to ₹6,432.1 crore in its latest financial report. With interest expenses consuming over 60% of its operating revenues, the situation appears dire.

Despite the grim outlook, some analysts remain cautiously optimistic. Global brokerage firm Nomura has upgraded Vodafone Idea’s rating from neutral to buy, setting a target price of ₹15 per share. They believe that the worst may be over for Vodafone Idea now that the AGR issue has been clarified. Nomura suggests that this recent price correction presents a potential buying opportunity for investors.

Conversely, UBS has indicated that Vodafone Idea’s fair value could range between ₹12 (without any relief on AGR) and ₹24 (with full relief). However, they caution that whether these measures will be beneficial for equity holders remains uncertain.

Market Reactions and Future Prospects

The market reaction to Vodafone Idea’s plummeting shares has been mixed. While some investors are wary of further declines, others see potential in the stock given the broader industry context. Sushil Choksey from Indus Equity Advisors believes that Vodafone Idea will need to undertake some form of fundraising to strengthen its balance sheet and repay its AGR dues unless granted more time by the government.

Choksey also expressed confidence that the Indian government aims to support all three major telecom players—Jio, Airtel, and Vodafone Idea—to ensure healthy competition in the market. He anticipates that government support could play a crucial role in stabilizing Vodafone Idea’s financial situation.

In addition to raising funds, analysts suggest that tariff hikes may be necessary for Vodafone Idea to improve its earnings and regain investor confidence. However, with competition intensifying among telecom providers, any increase in tariffs could lead to customer attrition if not managed carefully.

Broader Implications for Telecom Sector

The fallout from this ruling extends beyond just Vodafone Idea. Other telecom companies like Bharti Airtel are also affected by the Supreme Court’s decision regarding AGR dues. Airtel currently faces liabilities amounting to ₹44,000 crore. The implications of these rulings could reshape competitive dynamics within India’s telecom sector.

Investors are now closely monitoring how these companies will navigate their financial challenges moving forward. With increasing pressure on margins and profitability due to high debt levels and regulatory burdens, strategic decisions regarding pricing and capital investments will be critical for survival.

As of now, Vodafone Idea shares are trading at approximately ₹10.17 on BSE as of early morning trading on September 20. The stock’s performance in the coming weeks will be pivotal as investors assess whether management can effectively address these looming challenges.