Why Vodafone Idea's Share Was Trapped In Free Fall On January 2 After 40% Gains?

Leading telecom services provider, Vodafone Idea's share price was in a sharp free fall on Tuesday with a decline of as much as 6% in a single day. Investors were bumped over the company's clarification regards to deal with the world's richest man, Elon Musk-backed Starlink. A clarification that revealed that there was no partnership discussion with Musk's Starlink had led to selling pressure on Vodafone Idea.

On January 2nd, Vodafone Idea's share ended at Rs 16.03 apiece, down by 5.7% with a market cap of Rs 78,033.54 crore. Overall, on the day, the stock tumbled about 6% on BSE.

In its clarification, Vodafone Idea denied the news item which claimed that billionaire Elon Musk-led Starlink is in tie-up talks with Vodafone Idea.

As per the regulatory filing, on the Starlink buzz, Vodafone Idea said, "We would like to submit that the Company is not in any such discussion with the named party. We are not aware of the basis of the said news item."

Further, Vodafone Idea clarified saying, "We wish to reiterate and clarify that the Company will comply with SEBI Listing
Regulations and duly keep the stock exchanges informed of all the price sensitive information."

The news was first reported by Business World on December 29th. As per this news agency's article, the world's largest tech billionaire and maverick businessman Elon Musk would tie up with India's Vodafone Idea (Vi) for his maiden entry into India's telecoms space. Markets were also betting that the government would sell its 33.1 per cent stake in Vi to Musk to enable Starlink to enter the Indian market. Musk is visiting India to attend the Vibrant Gujarat Business Summit between January 10 and 12 and a big land deal in the state for a mega factory for his auto company Tesla has already been reported. Markets are now hoping that major announcements will be made by Starlink and the government in the telecoms space when Musk visits Gujarat.

Not just Musk, markets were even expecting Amazon's Project Kuiper to take an interest in Vodafone Idea stakes for its broadband services in India.

The news of the deal with Musk had led to a huge buying in Vodafone shares. On December 29th alone, this telecom stock zoomed by 20.75%, followed by an upside of 6.3% on January 1st.

Vodafone Idea shares also touched a new 52-week high of Rs 18.40 apiece on New Year's Day (January 1). Overall, in two sessions, Vodafone Idea shares skyrocketed by nearly 39% on BSE before correcting on January 2nd.

Vodafone Idea is currently facing financial crises as it continues to lose its subscriber base to its rivals Airtel and Jio. Vi also has lost a substantial market share in the telecom sector.

In Q2FY24, Vodafone Idea's revenue for the quarter stood at Rs. 107.2 billion, a QoQ improvement of 0.6% aided by better subscriber mix and 4G subscriber additions. On a reported basis, EBITDA for the quarter grew by 3.0% from Rs. 41.6 billion in Q1FY24 to Rs. 42.8 billion and EBITDA margins were at 40%. EBITDA excluding IndAS116 impact grew by 2.3% and was at Rs. 20.6 billion compared to Rs. 20.2 billion in Q1FY24.

Also, the company continues to report a huge chunk of losses on a quarterly basis. In Q2FY24, Vodafone Idea's net loss widened to Rs 87,379 million compared to losses of Rs 78,400 million in Q1FY24 and Rs 75,955 million in Q2FY23.

Further, total gross debt (excluding lease liabilities and including interest accrued but not due) as of September 30, 2023, stood at Rs. 2,127.8 billion comprising deferred spectrum payment obligations of Rs. 1,351.3 billion and AGR liability of Rs. 681.8 billion that is due to the Government, debt from banks and financial institutions of Rs. 78.6 billion and Optionally Convertible Debentures amounting to Rs. 16.1 billion. The net debt stood at Rs. 2,126.6 billion. The debt from banks and financial institutions has reduced by Rs. 72.2 billion during the last year (was at Rs. 150.8 billion in Q2FY23).

Looks like Vodafone Idea could use an effective rescue from its crisis.