shares of Vodafone Idea (Vi) increased by more than 7% Telecom fell nearly 21% yesterday after 12.6 percent in early deals on Wednesday on BSE, as the debt-ridden firm decided to opt to convert interest and AGR dues to equity, with the government holding a 35.8% stake . telco
After the conversion, the Government of India will hold approximately 35.8% of the total outstanding shares of the company, and promoter shareholders Vodafone Group will hold about 28.5% and Aditya Birla Group will hold about 17.8%.
Jefferies analysts said the government’s recent measures that give a four-year moratorium on AGR and spectrum repayments would provide a 250 billion annual cashflow relief to Vodafone Idea and improved long-term survival chances. In addition, “Vi has opted to convert the interest on the deferred payments to equity, Govt. will own 36% stake, largely eliminating the possibility of its operations abruptly shutting down.”
The government gave an option to telecom operators to pay interest for four years on deferred spectrum installments and AGR dues by way of conversion of such interest amount into NPV (net present value) equity.
Given the improvement in near-term cash flows, market share gains from Vodafone Idea are likely to moderate in FY13. Also, given that the government will be the largest lender and equity holder in VIL, Jefferies expects Reliance Jio and Bharti Airtel to shift their focus from market share to market expansion.
This rescue plan was crucial for Vodafone Idea, which has been losing customers to larger rivals, especially after Reliance Jio’s brutal price war in 2016, and rapidly gained market share to become the top player.
“While the telecom package has certainly provided temporary relief to the company, significant ARPU growth remains the most important factor for the long-term viability of the company. ARPU needs to be increased 250, from its current INR109, to maintain the leverage for it over the next 3-4 years. We await further details about the conversion before making any changes to our estimates. Maintain ‘REDUCE/SU’ with an unchanged target value of 7,” Edelweiss said in a note.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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