“The current reforms only address the liquidity stress in the sector and do not address the increased leverage levels in the sector as the crisis has been postponed to FY 26-27”
While the cabinet-approved telecom reforms will benefit all telcos in the near future, especially to help keep Vodafone Idea afloat, analysts do not find it to be a ‘game changer’ that will materially affect the health of the industry. will improve. They emphasize that the stability of the sector is still based on tariff revival.
“The current reforms only address the liquidity stress in the sector and do not resolve the increased leverage levels in the sector with the postponement of the sector till FY 26-27,” JM Financial said in a report. “The stability of the sector is still based on tariff revival.”
Similarly, BofA said these reforms relieve temporary stress as it frees up near-term cash flow but is not a game changer that will materially improve the health of the industry. It said, “The lack of increase in tariff is disappointing.
According to Motilal Oswal, the measures reflect a strong intention of the government to address Vodafone Idea’s near-term liquidity, but the tariff hike is warranted.
“If VI does not manage any capital inflows and tariff hikes, the industry may move towards a monopoly… We believe that policy support alone cannot solve the problems of VI. VI Needs tariff hike along with capital inflows at the earliest,” Edelweiss said.
According to Credit Suisse, Vodafone Idea needs a break-even ARPU of around ₹240 or 2.3x the current levels by FY26 to meet annual spectrum payments and AGR dues of ₹330 billion, to be repaid over the remaining tenure. Will happen. This represents a 23% CAGR in ARPU for VIL over the next four years and is assuming that VIL is able to retain 260 million customers.
On the four-year moratorium on spectrum and AGR dues, Nomura said it is a double-edged sword where liquidity improves, but debt will expand.
“The moratorium on Indian government dues will likely ease the liquidity concerns of VI in annual cash-flow relief to the top three private telecom companies. However, with the realization of interest during the moratorium at relatively higher interest rates (8-10%), the future repayment of telcos and the total debt of the Government of India will increase sharply. “
The government now has the option to convert the deferred due amount and also the annual interest on the deferred payment into equity. “In the worst-case scenario, we believe this could pave the way for majority of the government-owned VILs, thus, increasing the visibility of the concern,” ICICI Securities said.
It added that the tariff hike should happen at the earliest as the relief package does not fully meet VIL’s cash-flow requirements, and even to raise funds, the tariff hike remains important.
“Bharti and Reliance Jio have not benefited much from the relief package, but they will benefit from the improvement in spectrum norms during the 5G spectrum auction. Indus Towers should see a better outlook on VIL with the risk of looming concern, but growth prospects still remain weak,” it added.
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