Auditors raise red flag over Vodafone Idea's going concern status; ICICI Securities sees over 45% fall

Auditors of Vodafone Idea expressed concerns about the company’s ability to continue as a going concern due to bleak financial conditions. This comes despite the company on Wednesday reported narrowing of its consolidated loss to Rs 7,022.8 crore for the quarter ended March 2021, mainly on account of cost optimisation. The telecom operator had posted a loss of Rs 11,643.5 crore in the same period a year ago.

Total income declined by about 19% to Rs 9,647.8 crore from Rs 11,920.4 crore in the corresponding quarter of 2019-20.

“The company’s financial performance has impacted its ability to generate the cash flow that it needs to settle/ refinance its liabilities and guarantees as they fall due, which along with its financial condition is resulting in material uncertainty that casts significant doubt on the company’s ability to make the payments mentioned therein and continue as a going concern,” the auditor said.

Shares decline

Shares of Vodafone Idea traded 7.74% lower at Rs 9.18 at around 11.52 am (IST). On the other hand, the benchmark BSE Sensex was down 75 points, or 0.14%, at 52,407 at around the same time.

“The said assumption of going concern is essentially dependent on its ability to raise additional funds as required in line with the approval by the company’s board of directors in its meeting on September 4, 2020, successful negotiations with lenders on continued support, refinancing of debts, monetisation of certain assets, the outcome of the modification application filed with the Hon’ble Supreme Court and clarity of the next installment amount, acceptance of its deferment request by DoT and generation of cash flow from its operations that it needs to settle/renew its liabilities/guarantees as they fall due. Our conclusion is not modified in respect of this matter,” it said.

ICICI Securities has maintained a ‘Sell’ call

Following the financial results, brokerage ICICI Securities maintained a ‘Sell’ call on Vodafone Idea with a price target of Rs 5, indicating a nearly 45% downside from the current market price.

“Vodafone Idea’s (VIL) Q4FY21 cash EBITDA at Rs 2,200 crore benefited from one-off gains in-network cost of Rs 450 crore; adjusted cash EBITDA came in below our estimate despite cost-saving efforts. Though VIL has seen marginal improvement in 4G subscriber (sub) addition and lower total subs loss, it is too little to make any difference. We see liabilities coming up for payment soon and VIL may have a cashflow mismatch. The efforts to raise funds has also not yielded any outcome yet. Relief from the government on spectrum payment and reduction in AGR liability on SC accepting reconciliation are other hopes,” the brokerage said.