On Wednesday, the Union Cabinet announced key telecom reforms, including moratorium of telecom dues both adjusted gross revenue (AGR) and Spectrum for 4 years, effective October 2021, which is a key cash flow relief measure for Vodafone Idea.
According to ICICI Securities, the option to pay interest through equity to the government and the government option to convert the dues into equity after four years, also ensures survival visibility for Vodafone Idea beyond four years albeit with massive equity dilution for the existing shareholder.
In the past 11 trading days, the stock price of Vodafone Idea has more-than-doubled with a 103-per cent surge from level of Rs 6.09 on September 1, 2021. It had hit a 52-week high of Rs 13.80 on January 15, 2021.
At 09:44 am, the stock was trading 3 per cent higher at Rs 11.62, as compared to a 0.60 per cent rise in the S&P BSE Sensex. The counter has seen huge trading volumes, with a combined 554 million equity shares having changed hands on the NSE and BSE in the first half an hour of trading.
"Vodafone Idea, which had annual commitment of around Rs 24,000 crore towards spectrum payment and AGR dues, will be the key beneficiary. While the current rate of EBITDA/capex implies that cash burn will come down to Rs 1,400 crore, the lagging network spends (its capex is one-fourth of Airtel’s India capex) will keep the risk of churn high," ICICI Securities added.
For Motilal Oswal Financial Services, the moratorium would help to solve the immediate liquidity woes of Vodafone India, but its ballooning debt and payment after four years will be difficult to address.
"For Vodafone India, we await further guidelines on debt to equity conversion but the interest component is huge (Rs 500-550 billion) against its current market capitalisation of Rs 390 billion. Hence, the conversion of interest accrued into equity could have a significant impact on the shareholding," it said.
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