Vodafone Idea Turnaround: Myth or Reality?

[00:00:00] Hey folks CA Rachana Ranade here and I welcome you all to a very important video especially for those who hold Vodafone Idea shares or who are wanting to know about this company. This talk surged almost 20% on the April Fool's Day. I mean on the 1st of April it surged by 20%. Why? Because a news came up that the government has resolved to convert a sizable chunk of company spectrum dues into equity shares. In simple words what happened was that Vodafone Idea was liable to the government to the tune of 30% of the company's shares.

[00:00:30] 47,000 crore rupees almost. Okay I'm rounding it off. Instead of paying that money in cash they paid it by giving equity shares of the similar amount. With this so many people got really interested in this talk and this talk actually surged by 20%. All those super optimistic people started to feel that this talk is only at 8 rupees right now. With these dues now vanishing there is a chance that this talk may go from 8 to 80 rupees. Is that possible or not? They are going to answer all the you know important things that they are going to answer.

[00:01:00] points that can come up for this talk and can the stock go from 8 to 80 is what we are going to answer towards the end of the video. So keep on watching the video till the end. Well as I said just now only 37,000 crore rupees ka problem has been tackled right now by issuing equity shares to the government. The whole question is that what is the tune of the total debt which is payable to the government and that number is 2,10,000 crore rupees.

[00:01:23] Out of 2,10,000 crore rupees only 37,000 crore rupees has been tackled right now which is just 17% of the total amount due. Now with issuance of equity shares do you know how the new shareholding looks like? That's how it looks like. Vodafone is left with only 16% share. Aditya Birla Group is barely left with a 9.5% share. Government of India has already reached 49% stake in Vodafone idea.

[00:01:45] Now you can imagine if those who feel that for the balance debt rather than paying in cash to the government I mean in money terms if they were to give equity shares could that be possible? Ideally no because in that case Vodafone idea would become a government company because as per companies act any company in which government holds more than 50% is treated as a government company. And to the best of my knowledge I don't think such a thing has happened in the past that just to clear the dues government has kept on buying shares of that company and then it becomes a government company.

[00:02:14] So henceforth whatever dues need to be cleared by Vodafone idea they have to be paid in money. One more thing is that we typically say that when promoter holding is low then the motivation levels could be questioned and that is what has happened with VI right now where Aditya Birla Group and Vodafone PLC both put together are holding barely 25%. So I hope both basic problems are clear but is this the end of problems? No there are so many more problems lined up for this company. So let's talk about these in the immediate next section of the video.

[00:02:41] Harghar Investor is coming in Bangalore after sold out events in Pune and Mumbai. Just imagine this. Thousand people attempting a quiz on money management in real time and you getting to see the results appear instantly. That's the interactive experience waiting for you. During this event I'm also going to tell you my target for Nifty in 2027. But what's in it for the winners? Well they will walk away with free access to one of my paid courses. Got questions?

[00:03:12] Bring them on. We'll have a dedicated AMA segment to solve all your queries. Plus I'm taking selfies with everyone. Of course one who wants one. But yes with everyone. The tickets are already filling fast. So book your tickets before they are sold out. The link is in the description and in the pinned comment. Now let's move on with few more problems that Vodafone Idea is facing and for that have a look at this.

[00:03:35] Now if you see from financial year 21-22 to 24-25 Vodafone Ideas market share has been continuously dropping from 23% now only at 18%. Same has happened with BSNL dropping from 9.5% to 8.5%. And this share has been eaten up by two of their competitors. Jio moving ahead from 35.5% to 40.5% and Bharti Airtel from 31.5% to 33%. Now during all these years that we discussed right now overall market size grew only by 0.8% CAGR.

[00:04:05] But in this also VI was continuously losing its market share. Now one is about gaining market share which they are not able to do. Second is about ARPU or ARPU which is average revenue per user. And how much is that for Vodafone Idea? It is at 146. Now if I were to compare that with Jio they are able to generate an ARPU of 182 and Airtel at 209. So all in all this point also proves that they are not able to charge more to their customers. If you ask me why the reason is very simple.

[00:04:33] That if they are not able to give them latest technology something like 5G. Why would customers be ready to pay more? I think recently a news had come up that they are launching 5G services in Mumbai. I am talking about Vodafone Idea. But yet it is not available in almost all cities. That is the reason why their ARPU is also at a lower side. This is about business. Question is what about the financials? And for that we will have to go to Screener. Now here on screen you can see the sales number. It is continuously rising agreed. But if you have a look at sales growth.

[00:05:01] Sales has grown at barely 3% for a 5 year CAGR. You are saying at least it is a growth. What about profits? Have a look at this. Profits have just gone down year on year. From 2017 to TTM. Latest 12 months data. You can see that the number has been crazily growing. Of course it has softened a little bit. But still see one year you are making almost 27,000 crores of losses. That is pretty bad right? Right. And when has this streak of losses started? It started back in 2017. And something had launched in 2016. That was Jio Telecom. Right.

[00:05:31] With the launch of Jio. See what happened with Vodafone Idea. And that streak has just continued with the losses. More losses is equal to. The net worth also could turn negative. Has it? It has. If you see here. Equity Capital is of 69,700 crores. And the reserves are of 1,65,000 crores in negative. That's pretty bad right? If I'm talking also about the cash flow from operations. It is positive. But it is not enough to fund the 5G rollouts. Now if they are not able to do that with the existing cash flows.

[00:06:00] Can they take a loan from the bank? Yes. But if you look at the latest credit rating given by CARE. It is at BB+. It's not that super high. And that is the reason why they may not be able to get loan. At a comparatively lower rate of interest. Now finally we have to also understand about the latest business plans. I'm sure everyone who has been watching my Thursday live stream knows about this. That both Bharti Airtel and Reliance. Jio basically. Have tied up with Starlink. So that they can provide their services in India as well. But Vodafone Idea is not in competition.

[00:06:29] They have not talked about any such collaboration with Starlink. So going forward also they may fall back in this competition. And now finally coming to the million dollar question. Whether this stock will skyrocket from 8 rupees to 80 rupees. I think all the people who are sane would have already gotten the answer. Because I said that the sales are not growing that great. ARPU is at the lowest amongst the competitors. They are in continuous losses for the last 8 years. We did say that yes they are generating a positive operating cash flow. But not enough to fund for their future 5G rollouts.

[00:06:58] We also discussed the fact that their debt. Their credit rating is not that great. So even if they are able to get a debt or a loan. That will be at a comparatively higher rate of interest. We did say that 37,000 crores worth of loan payable was converted into equity. But the total dues outstanding to the government are to the tune of 2,10,000 crores. So I hope the answer is very clear. It's not easy at all for the stock to go from 8 to 80. It's as good as a dreamy expectation. And still for those people who are super highly optimistic.

[00:07:28] For them a simple math. Currently the stock rate is at 8. And if you are expecting it to go to 80, it means that you are expecting a 10x return from here. For that obviously the market cap will also have to become 10x. Right? Currently as I shoot the video the market cap is at 58,000 crores. And 10x of this would be 5.8 lakh crore rupees. Do you know how many companies have a big market capitalization like this? It's only 7 companies. Right from Reliance Industries, HDFC, TCS, Bharti Hotel, ICICI, SBI and Infosys. That's it.

[00:07:57] And the 7th one among the market cap. You can see all, actually by the way all are in profits. Even Infosys is at 27,000 crores of profit. You might be like 27,000 crores. That was the figure of Vodafone Idea. That is 27,000 crores loss not profit. Okay? So I hope with this you have understood that it's not an easy road for Vodafone Idea. This is an earnest request for everyone. Instead of buying like 1000 shares of an 8 rupees stock. Just because it's 8 rupees rather than buying that.

[00:08:26] Go ahead for stocks which are fundamentally strong. Which may be at 1000 rupees or plus. But ensure that they are fundamentally strong stocks. And then only go ahead with your final decision. I hope you enjoyed today's video. I hope you found a lot of value in this. If you did, please don't forget to like this video. Please don't forget to share this with your friends. I'll see you in the next one. Till then, take care. Jai and bye-bye.