Hitting redial

As Reliance Jio consolidates its grip on the telecom sector, its competitors continue to lose market share and revenue. Vodafone Idea’s Q1FY20 topline dropped 4% (QoQ) to Rs.112.65 billion due to erosion of subscriber base. Even the introduction of minimum recharge plan for prepaid customers wasn’t of much help as the company’s revenue was dented because of the loss of 14 million customers in the first quarter of FY20. The average revenue per user (ARPU) also remained subdued at Rs.108 up marginally from Rs.104 in the last quarter. An all-round poor performance meant a quarterly loss of Rs.49.32 billion.

With the telecom giant’s numbers failing to match investor expectations, the stock plunged to an all-time low of Rs.6. In a bid to halt the fall, promoter Kumar Mangalam Birla family-led entities IGH Holdings and Pilani Investment and Industries acquired stock worth Rs.370 million on July 30. After the acquisition, the stake of IGH Holdings and Pilani Investment went up from 0.11% and 1.22% to 0.22% and 1.3%, respectively. Post the merger in August 2018; the overall promoter holding has gone up marginally from 71.33% to 71.57%.

Even at the current valuation, some analysts are bearish about Vodafone Idea’s prospects. “The Vodafone-Idea combine is the weakest private telco, notwithstanding recent fundraising providing temporary relief for next four to five quarters,” opine analysts at ICICI Direct. They add that the “continued net subscriber loss (a reflection of weak sub-quality) and modest 4G sub addition clearly reflects the relatively weak position.”

Mutual funds, however, have utilized the 50% fall from March to June to average down their buying price. Post the rights issue in April, their cumulative holding moved from 5.08% in May to 5.88% in June. FPIs stake during the same period has moved from 16.63% to 15.67%. According to Value Research, Franklin Templeton Investment Funds holds 2.81% and Franklin Templeton MF and ICICI Prudential MF hold 2.59% and 1.79%, respectively.  Since July, the stock is down another 50%.