This telecom stock nearly doubled in 4 months on institutional buying

Shares of Vodafone Idea hit a 22-month high of Rs 14.45 on the BSE in the intraday trade on Friday, recording positive monthly returns for seven straight months

Shares of Vodafone Idea (Vi) hit a 22-month high of Rs 14.45, gaining 4 per cent on the BSE in Friday's intraday trade, in an otherwise subdued market. Thus far during the eight trading days of November, the stock of the telecom services provider has rallied 22 per cent on expectation of fund infusion by its promoters and on the back of institutional buying.  

By comparison, the S&P BSE Sensex was down 0.22 per cent at 10:22 AM. The benchmark index has gained 1.2 per cent so far this month.

The stock was quoting at its highest level since January 10, 2022. Besides, Vi has recorded positive monthly returns ifor seven straight months.

Meanwhile, in an exchange filing on Thursday, Vi informed that the Bombay High Court has instructed income tax department to issue the refund of Rs 1,128.47 crore within 30 days along with applicable interest. CLICK HERE FOR DETAILS

In the past four months, the market price of Vi has nearly doubled, zooming 95 per cent. Since April, the stock has skyrocketed 147 per cent as compared to 9.6 per cent rise in the S&P BSE Sensex.

Institutional investors, including foreign portfolio investors (FPIs) and mutual funds (MFs), increased their holdings in Vi to 4.13 per cent in the September quarter (Q2FY24). They held 2.89 per cent stake in the company at the end of June quarter (Q1FY24) and 2.69 per cent at the end of March quarter (Q4FY23).

FPI have increased holdings from 2.29 per cent to 2.46 per cent in Q2FY24, while the number of FPIs holding the stock increased from 201 to 211 during the quarter.

MFs, too, have increased holdings to 1.67 per cent from 0.60 per cent in the previous quarter. In absolute terms, the number of MF schemes holding Vi in their portfolio increased from 30 to 40 in Q2FY24.

However, retail investors' holding in Vi decreased to 10.04 per cent in Q2FY24 from 11.53 per cent in Q1FY24 and 11.77 per cent in Q4FY23, shareholding pattern data shows.

During the quarterly earnings call, the management of the telecom service provider said that the promised promoter funding commitment of Rs 2,000 crore should close in the December quarter.

Vi CEO Akshaya Moondra said this will be followed by banks lending more. Talks with equity investors have progressed from the last quarter, the management said.

"We had gotten some bank funding to tide over the short term mismatch that we had in the last quarter. The promoters' commitment is there. They have said that they will support as and when required. And we expect that this promoters' contribution should also come alongside the tie up with the external investor," Akshaya Moondra said.

According to analysts at JM Financial, improved capex as well as tariff hikes are required to ensure a strong sustainable telco in the long term despite near-term survivability ibeingensured due to the government's reform measure.

"We have marginally raised our FY24-25 Ebitda estimate by 1 per cent accounting for Q2FY24 results. Our target of Rs 6/share is unchanged. We reiterate our SELL rating," the brokerage said. 

In the July to September quarter (Q2FY24), Vi's ARPU came at Rs 142 compared to Rs 139 in Q1FY24; a quarter-on-quarter (QoQ) growth of 2.1 per cent. On a year-on-year (YoY) basis, ARPU increased by 8.7 per cent. The improvement was primarily aided by change in entry level plan, 2G to 4G upgrade and migration of subscribers to higher ARPU plans.

The management further said the company continues to focus on getting more customers on 4G/Unlimited plans for further average revenue per user (ARPU) improvements.

Vi recorded 0.6 per cent sequential improvement in gross revenue at Rs 10,716 crore aided by better subscriber mix and 4G subscriber additions. This is also the ninth consecutive quarter of growth in ARPU and 4G subscribers.

On a reported basis, earnings before interest, taxes, depreciation, and amortisation (Ebitda) for the quarter grew by 3.0 per cent from Rs 4,157 crore in Q1FY24 to Rs 4,283 crore and Ebitda margins were at 40 per cent from 39.0 per cent in previous quarter.

The overall data volumes were up 2.0 per cent QoQ and the management continues to see the increase in the data usage per broadband customer which now stands at ~15.8 GB/month.

Vi has seen a consistent rise in ARPU owing to a high renewal rate and a shift to 4G. However, there has been a notable increase in subscriber churn during this period, analysts at Motilal Oswal Financial Services said in result update.

"Capex on the rollout of 4G and 5G holds significant importance. Thus, the much awaited capital raise is crucial as it is essential to ensure immediate liquidity and facilitate the expansion of the network. Further, it still holds a debt of Rs 2.1 trillion, with an annual installment of Rs 43,000 crore from FY26 onward. This looks challenging with FY25E Ebitda (IND-AS 116) of Rs 11,800 crore," the brokerage firm said.

The need for a significant amount of cash to service debt leaves limited upside opportunities for equity holders despite the high operating leverage opportunity from any source of ARPU increase. The current low level of Ebitda will make it challenging to service debt without an external fund infusion, the analysts said with 'Neutral' rating on the stock.