Vodafone Idea Limited reported a gigantic loss of Rs. 50,933 crores just in the second quarter (Q2) which ended in September. According to the reports, leading reason behind this loss is the order passed by the Supreme Court of India wherein the top court asked the network provider to pay its dues.
Currently the company cash balance has fallen down to Rs. 15,390 crores whereas it owes around Rs. 44,000 to the government in terms of fees, penalties, and taxes.
As the news hit the market shares of the company fell by almost 19%, but then by the end of the day saw an increase of 35% from the lowest on that day. Having said that, from a realistic standpoint, when a company’s share prices hovers around Rs. 3/share, even a low gain of 45 paisa will show an increase of 16% on the share.
In the meantime, the CEO of Vodafone Group Plc. Nick Read, has already cautioned the government that Vodafone might exit India if the rules and policies are not relaxed.
Nonetheless, why did the share price increase when the company reported a loss of over Rs. 50,000 crores? Speculation are that the government will soon announce the relief package that it has been working on for some time now as after the Supreme Court judgement mobile operators have been hit with huge charges, fees, and penalties. Even Airtel reported losses of over Rs. 23,000 crores in Q2.
Many analysts took a sigh of relief as they thought the company will take loses more than what it has sustained owing to all the negative word of mouth going around for the company. In a note issue by Dolat Capital Market Pv. Ltd. it said ‘Vodafone Idea’s Q2FY20 was weak, but respectable considering precarious financials, chief executive officer resignation and negativity in media impacting employee morale’.
Additionally, Vodafone Idea Limited saw a decline in the rate of customer loss. Moreover, the company also saw an increase in the data consumption by 8.4%, along with increase in 4G subscribers.
Nonetheless, the future of the company is still covered in clouds, according to a note issued by Kotak Institutional Equities ‘The company indicated good LTE net-additions for the month of October 2019; however, we believe this trend could reverse in the wake of the incessant negative news flow around the company post the AGR judgment’.
The company is also looking at a decline in the voice volumes, and due to low cash flow the company is forced to reduce its capital expenditure for the current fiscal year.
The future of Vodafone Idea Limited looks grim until the government proviled the network providers in India with some relief. According to analysts at Kotak ‘We shall review our model post the earnings call tomorrow. To be sure, the earnings model revision would really be an academic exercise at this point. What happens on the government relief front is what matters the most’. As pointed earlier, Global CEO Vodafone Group Plc., has already announced that they may have to leave India following the stringent rules and negative verdicts.
Check out what the CEO said here