Why Bharti Airtel, Vodafone Idea shares have risen up to 35% despite record quarterly losses

Shares of telecom companies Bharti Airtel and Vodafone Idea extended gaining momentum for the second straight session on Monday as most of the brokerages maintained a bullish stance on the stocks despite the two telcos posting record losses in the September quarter. Vodafone Idea shares have jumped over 35 per cent as compared to Thursday's closing price of Rs 2.95 on the BSE after the telecom major reported record loss in the second quarter ended September 30, 2019.

Bharti Airtel share price gained as much as 20 per cent compared to Friday's low of Rs 351 on the BSE. On Monday, the stock rose 6.91 per cent to hit 52-week high of Rs 420.40 in intraday trade on the Bombay Stock Exchange (BSE). Brokerages have maintained 'buy' rating on the stock due to the telco's strong operating performance in September quarter. Bharti Airtel stock hit an all-time high of Rs 527 on October 10, 2007. Paring early gains, Bharti Airtel share price closed 4.06 per cent higher at Rs 409.15 apiece on the BSE on Monday.

In a similar trend, shares of Vodafone Idea rallied as much as 23.6 per cent to hit the day's high of Rs 4.55. The stock closed trade at Rs 4.47, up 21.47 per cent.

Also Read: 3 reasons why Vodafone Idea will file for bankruptcy; 3 reasons why it should be kept alive

Global brokerage UBS maintained 'Buy' call on Airtel with a target price of Rs 415 per share. The rating agency said the firm posted a solid operating performance but the focus shifted towards AGR liabilities.

Among others, Emkay Global Financial Services and Sharekhan have retained 'Buy' rating with a 12-month target price of Rs 432 per share and Rs 440, respectively.

Also Read: AGR provisioning blows Rs 23,045 crore hole in Airtel balance sheet

In September quarter, Airtel's operating profit or EBITDA (earnings before interest, tax, depreciation and amortisation) jumped 41 per cent year-on-year to Rs 8,936 crore, helped by lower costs, network operating expenses as well as other expenses. EBITDA margin increased by 10.8 per cent to 42.3 per cent in the quarter as compared to 31.5 per cent in the corresponding quarter last year.

Also Read: AGR impact: Banks fear telcos' loan defaults worth Rs 1.15 lakh crore

During July-September quarter, Bharti Airtel reported its highest-ever quarterly loss of Rs 23,045 crore due to provisioning for Adjusted Gross Revenue (AGR) dues after Supreme Court's verdict. The company has made a provision of Rs 28,450 crore as a charge for the quarter with respect to the licence fee and spectrum usage charges (SUC) based on the definition of AGR.

Also Read: AGR effect: Vodafone Idea Q2 loss balloons to Rs 50,921 crore

In Q2FY20, Vodafone Idea posted a net loss of Rs 50,921.90 crore on account of exceptional charge pertaining to the provisioning of Rs 25,680 crore towards the AGR dues.  The company has estimated a total liability of Rs 44,150 crore  based on Supreme Court's judgement, which include Rs 27,610 crore related to licence fee and Rs 16,540 crore for spectrum usage charges.

Propelled by strong buying in Bharti Airtel and Vodafone Idea shares, the S&P BSE Telecom index closed 3.42 per cent higher at 997.61.

Edited by Chitranjan Kumar