Shares of Vodafone Idea (Vi), which needed immediate relief from the government to survive and avoid bankruptcy, jumped almost 10 % in early trade to Rs 9.82 on BSE Thursday. Shares of
, in turn, initially rose over 2.5% in early trade and subsequently were trading around 0.34% higher at Rs 728. Shares of , the parent of Reliance Jio, in turn, rose 0.5% initially to Rs 2,391 on BSE.
Brokerage JM Financial said the four-year moratorium on statutory payouts “improves Vi’s cash flow by Rs 9,100 crore in FY22 (towards AGR payments), while over FY23 to FY26, it improves its cash flow by Rs 24,900 crore per year (Rs 15,800 crore of spectrum payments + Rs 9,100 crore of AGR payments p.a), amounting to almost Rs 1 lakh-crore.
BofA Securities, though, said while the reforms remove temporary stress by freeing near-term cash-flows, they “are not a game changer that would materially improve” the health of the industry. This, the brokerage, said is since investors were expecting a nudge from the government to the telcos to raise tariffs.
“With no visibility on tariff hikes, while Vi’s cash Ebitda should be able to meet its capex requirements for the next four years, we don’t see the company in a position to materially improve its liquidity so as to generate cash flows to pay the AGR and spectrum payments post the moratorium,” BofA Securities said.
It added that “without any cash injection, it does not see Vi participating in a 5G auction either, a scenario that would further consolidate the market in favor of Bharti Airtel and Reliance Jio.
British analyst firm, New Street Research backed the view, saying that while the package is helpful “it doesn’t give Vi the liquidity it needs to pay forthcoming debt as it comes due, (or) to buy 5G spectrum in the forthcoming auction, to invest in its 4G network to match Bharti and Jio’s quality, and to build a 5G network”.
IIFL Securities estimates Vi would face an annual outgo of Rs 37,000 crore on AGR and spectrum from FY26 as the interest during the moratorium would be SBI MCLR + 2%, which comes to 9%”.
ICICI Securities said the government having the option to convert Vi’s deferred dues, and also annual interest on deferred payment into equities “could pave the way for Vi to become majority-owned by the government in a worst-case scenario, increasing going concern visibility”.
Brokerage J P Morgan, in turn, said while the reforms delay near-term liquidity challenges for Vi and ensure a three-player market, they “won’t materially change the telco’s ability to invest in capex without a capital raise or a substantial tariff hike”.
