Vodafone Idea slumps after chairmans comment

Vodafone Idea fell 6.16% to Rs 6.86 after the companys chairman Kumar Mangalam Birla said the company will shut shop if there is no government relief.

Dec 06, 2019 09:12 IST capital market

Birla was responding to a query, posed at an event, about the companys course of action going forward in the absence of government relief. Birla said the Aditya Birla Group will not invest any money in the company in the absence of relief from the government. Birla said the company will have to opt for insolvency route in the absence of relief.

Shares of Vodafone Idea is down 11.37% in two trading sessions to its current market price of Rs 6.86 from its recent closing high of Rs 7.74 on Wednesday, 4 December 2019.

The stock fell 5.56% to Rs 7.31 on Thursday after credit rating agency Brickwork Rating downgraded its rating on Vodafone Ideas on non-convertible debentures (NCDs) to BWR BBB- from BWR A- (rating watch with negative implications).

The downgrade is on account of considerable impact of the adjusted gross revenue (AGR) related liability on the financial performance of the company resulting in huge losses, erosion of net worth and deterioration in the overall risk profile of the company. The announcement was made during trading hours on 5 December 2019.

Last month, credit ratings agencies, CRISIL and CARE Ratings downgraded their ratings on Vodafone Ideas NCDs post the Supreme Court judgement. CRISIL downgraded ratings from BBB+ to BBB- while CARE Ratings downgraded to CARE BBB- from CARE A- with a negative implications outlook. Both the downgrades were on account of erosion in the overall risk profile of the company due unfavorable ruling of Supreme Court (SC) in AGR matter.

SC on 24 October 2019 ruled in favor of the government on the AGR issue, with grave revenue implications to the tune of over Rs 92,000 crore for the ailing telecom sector.

AGR is the basis on which Department of Telecommunications (DoT) calculates levies payable by operators. Telecom operators are liable to pay around 3-5% and 8% of the AGR as spectrum usage charges and licence fees, respectively, to DoT. Telcos argued that AGR should comprise revenue from telecom services, but DoT insisting that AGR should include all revenue earned by an operator, including that from non-core telecom operations.

Consequent to the SC judgement, Vodafone Idea accounted for the estimated liability of Rs 27,610 crore related to license fee and Rs 16,540 crore related to spectrum usage charges up to 30 September 2019, including the interest, penalty and interest thereon of Rs 33,010 crore.

On consolidated basis, Vodafone Idea reported a net loss of Rs 50,921.90 crore in Q2 September 2019 as against a net loss of Rs 4,973 crore in Q2 September 2018. The net sales grew 41.8% to Rs 10,840.20 crore in Q2 September 2019 over Q2 September 2018.

Vodafone Ideas offerings include consumer and enterprise. Its consumer offerings include prepaid unlimited propositions, red/nirvana postpaid plans, unlimited international roaming products and others.

Meanwhile, the S&P BSE Sensex was down 316.92 points or 0.78% to 40,462.67.

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