$MCADE presale is now live!

Is Vodafone Idea stock a good contrarian buy as it sinks?

By:
on Jan 12, 2023
Listen to this article
  • Vodafone Idea has been in a strong downward trend for years.
  • The company has high debt levels and is facing going concern issues.
  • It is bleeding users as competition with Reliance Jio rise.

Vodafone Idea (NSE: IDEA) share price has been in a freefall in the past few months as concerns about the company’s future rose. The stock plunged to a low of ₹7.25, which was about 56% below the highest level in 2021. It is sitting at its lowest point since September 2021. So, is IDEA a good contrarian stock to buy?

Going concern issues continue

Vodafone Idea is a troubled telecommunication company that is mostly owned by UK’s Vodafone Group and Aditya Birla. The company has been under intense pressure in the past few years amid low profitability and high debts. Last year, the company’s management admitted that the stock was heading towards an irretrievable point of collapse.

Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.

The company has moved from one crisis into another. For example, the company was entangled in a decade-long confrontation with the Indian government. The government wanted Vodafone Group to pay back taxes following its acquisition in 2007.

Vodafone Idea was then hit with a $7 billion fine because of a license fee by the government. Most importantly, the company is losing market share to Reliance’s Jio and Bharti Airtel. It lost 3.5 million customers in October last year while Jio added 1.4 million in the same period.

The stock continued plunging this year after the company said that it needed an emergency loan worth about ₹70 billion or $849 million.

Analysts believe that banks will be afraid of extending loans to the company. Besides, it is already struggling to pay its debts. The government wants Vodafone Idea’s parent companies to inject more capital to the company. They have both pledged to invest between ₹20 billion and ₹30 billion, which is lower than the ₹400-500 billion that the government wants.

Therefore, there are serious questions about Vodafone Idea’s future as its losses and competition mount and liquidity tightens. 

Vodafone Idea share price forecast

Vodafone Idea share price
VOD stock chart by TradingView

The daily chart shows that the IDEA stock price has been in a strong bearish trend in the past few weeks. This sell-off intensified when the stock formed a death cross pattern in April 2022. A death cross happens when a company’s 200-day and 50-day moving averages make a crossover. 

The shares then moved below the lower side of the descending triangle pattern. Therefore, I suspect that the stock will continue falling this year as it faces significant headwinds. The next key level to watch will be at ₹5.