Vodafone Idea’s (Vi) stock has risen more than 100% comfortably over the last six months. The stock, once trading at Rs 4.55 a few months back, is trading at Rs 15.50 at the time of writing. Many in the market were expecting the telco to pack its business after continuous poor performance both in adding new customers and network coverage in India. But then, in September, an unprecedented thing happened.
Vodafone Idea was saved by the government’s decision to bail out private sector companies in the telecom industry. The government reduced the cash outflow burden from the telcos as well as returned their bank guarantees, and promised to take a part of the companies if they didn’t want to pay the interest dues.
5G and Tariff Hike Played a Big Role Too
Vodafone Idea also benefitted from the continuous developments in 5G. Investors mostly look for what the company is doing and where its stock is currently trading, and whether there’s an upside or not.
Since the telco has been unable to secure outside funding, the retail investors are mostly driving the stock of Vodafone Idea. Announcements related to 5G shifted the perspective of the investors in the market to a little positive towards Vodafone Idea. 5G is undoubtedly the future of the telecom industry, and it will interconnect a lot of industries.
Then there were the prepaid tariff hikes that were announced by all the private telecom operators in November 2021. This would result in a higher average revenue per user (ARPU), ultimately resulting in more revenues for the companies.
Vodafone Idea still has a lot of debt in its books. One thing that a retail investor needs to understand is, while there’s an upside, there’s an inherent risk as well. Regardless of how much help the telco gets from the market conditions, ultimately, it needs to convert that into good business performance and add in new 4G users along with deleveraging because 5G investments are going to require raising more debt.