Why Vodafone Is Falling Today: Vodafone Idea has been facing a tough time, and its share price has fallen again. On the latest trading day, the stock plunged over 14%, hitting an intraday low of ₹12.92. This sharp fall has worried investors, leaving many wondering what caused this sudden drop. In this article, we’ll explore the reasons behind Vodafone Idea’s stock decline and what the future might hold.
What Happened to Vodafone Idea’s Stock?
The recent drop in Vodafone Idea’s share price comes after brokerage firm Morgan Stanley gave a “Sell” rating to the stock. This is one of the main reasons for the stock’s fall. Even though Morgan Stanley slightly raised the target price from ₹2.2 to ₹2.5 per share, their overall outlook on the stock remains negative.
Why Did Morgan Stanley Give a ‘Sell’ Rating?
Morgan Stanley’s research highlights several problems that Vodafone Idea is facing. According to their report, there is a direct link between how much money a company spends on improving its network (capex) and its ability to gain or maintain market share. Unfortunately for Vodafone Idea, their competitors are expected to spend at least 50% more on network upgrades than them. This puts Vodafone Idea at a disadvantage.
The brokerage firm believes that Vodafone Idea could lose 300 basis points (bps) of market share over the next 3-4 years due to its lower spending. In simple terms, the company may lose more customers and revenue in the coming years.
High Debt Levels Are a Big Problem
One of the biggest challenges Vodafone Idea is facing is its high level of debt. Morgan Stanley’s report also points out that the company’s free cash flow (FCF) is expected to stay negative until at least FY31. This means Vodafone Idea will continue to spend more money than it earns, which is bad news for its financial health.
Even after a recent capital raise and tariff increase, Vodafone Idea’s net-debt-to-EBITDA ratio is expected to remain high at 19x by March 2025. This indicates that the company’s balance sheet will stay under pressure. Even if the government converts some of Vodafone Idea’s dues into equity, it may not be enough to fix the company’s financial issues.
How Bad Could It Get?
Morgan Stanley painted a grim picture in their report. In a worst-case scenario, they expect an 83% downside to Vodafone Idea’s stock price. This prediction assumes that Vodafone Idea will continue to lose market share, struggle with high debt, and face more financial challenges in the coming years.
Recent Performance of Vodafone Idea Stock
The stock has not been performing well recently. In the last five days, Vodafone Idea’s share price fell by 11.7%. Over the past month, the stock dropped 11.2%. Even though it gave a return of 26% over the last year, the stock has eroded investors’ wealth by 21% so far in 2024.
In comparison, the Nifty 50 index fell by 1.6% in the last five days but rose by 3.7% in the past month. This shows that while the overall market has been doing better, Vodafone Idea’s stock has been struggling.
Should You Sell?
Given the current situation, many investors are wondering if they should sell their Vodafone Idea shares. Morgan Stanley’s “Sell” rating and prediction of further downside are concerning. The company’s financial health is under strain, and it’s struggling to compete with its rivals.
If you are a cautious investor and don’t want to take on more risk, selling your shares might be a good idea. The outlook for Vodafone Idea is uncertain, and it may take years for the company to recover, if at all.
On the other hand, if you are willing to take a long-term gamble, you could hold on to your shares. Vodafone Idea is working on expanding its 4G network and launching 5G services in India. However, these plans may not be enough to turn things around in the near future.
Conclusion
Vodafone Idea’s share price has taken another big hit, dropping 14% after Morgan Stanley’s “Sell” rating and grim outlook. The company’s financial troubles, high debt, and lower spending on network upgrades compared to its competitors are the main reasons for the decline.
If you are risk-averse, selling your shares might be a safer option. However, if you believe in Vodafone Idea’s long-term potential, you may choose to hold on to your shares and hope for a turnaround in the future.
