Vodafone-Idea, Airtel Gets the Much Needed Relief from Government
Mr. Narendra Modi headed cabinet on Wednesday (20 Nov 2019) approved the recommendation of the Committee of Secretaries (COS) and allowed Telecom companies a 2-year moratorium on Spectrum payment.
Notably, VIL and Airtel were required to pay 76,000 Crore to the government which is now deferred by the government to give some breathing space to the struggling telecom companies.
However, Telecom companies will have to provide a bank guarantee to get relief from the government.
Additionally, in the words of Finance Minister Ms. Sitharaman, companies need to pay the interest for the deferred payment and NPV of the due amount will remain the same.
As per the comments of Mr. Sanjay Kapoor, former Airtel CEO, this decision will not have any positive impact on the balance sheet of the telcos which are still required to pay the full amount with interest.
They have just got the much-needed breather but in the long run, they will need to raise the rates to make the business more sustainable and able to raise more funds for 5G deployment.
This is the first positive news that has come for the sector after the AGR verdict by the Hon’able Supreme Court.
Notably, the companies need to still pay a huge amount but the burden is deferred now. It may not be as positive as getting some relief in terms of reduced payment or waiver of interest.
Nevertheless, Vodafone-Idea, Airtel and JIO are already planning to increase tariff in December and we can expect a 30-40% increase in the current rates.
Notably, JIO has already raised tariff by 15%, in the name of IUC charges and will further increase them in December.
The future of Vodafone-Idea seems more certain than before. The company was destined to shut shop if there would not have been any relief.
It is difficult to say if this relief is enough for the promoters (Vodafone PLC and Aditya Birla Group) to infuse more capital in the company and work on revival.
Vodafone-Idea shares have already rallied more than 100% in the last 3 trading sessions and is likely to increase further.
Airtel is in a more stable position than Vodafone-Idea and is likely to gain in the stock market in the coming days.
Vodafone-Idea Share price is also going to be volatile and depending on the sentiment can swing on either side.
In the initial trade on 21st November, the stock has opened 10% down which means there is a sell pressure and markets are not seeing this as a positive decision.
But there is no panic selling happening as of yet and it can also rebound.
Statement of Finance Minister Ms. Nirmala Sitharaman.
Statement from Mr. Sanjiv Kapoor, former CEO of Bharti Airtel.
Finance Minister Nirmala Sitharaman Raises Hopes for Telecom Sector – Telecom Stock Rallies
Indian Finance minister Nirmala Sitharaman hinted that they are looking forward to reviving the Telecom companies and are keenly interested to help businesses strive and do well in the market.
The Vodafone-Idea stock rallied and it gained 27.12% before closing of trade on the hopes of a revival.
The stock was trading at a low of Rs. 2.40 and later in the day closed at Rs. 3.75.
“We want no company to shut their operations. We want everyone to flourish,” she said at a press meet in New Delhi.
Considering the above, it seems that the government is looking forward to offering some help to the incumbent telecom operators.
Vodafone’s global CEO has already said that it will be very difficult for the company to survive in case they have to pay the AGR dues to the DOT.
There is a lot of speculation in the market, about whether one should invest or not invest in the VIL share at the moment.
As far as we know, the survival of the company greatly depends on the amount of relief provided by the government.
The company not only has these obligations but also has huge borrowings which are difficult to pay when the company is having operating losses.
The stock price, in the long run, will entirely depend on what the government decides and it will be very risky in my opinion to put money in the VIL stock at the moment.
In the last 1 year, the stock has come down from Rs. 22.1 to Rs. 3.5 which clearly shows the company is struggling to continue. The AGR judgment seems like the last nail in the coffin.
There is a lot of upside to the stock, but it will not be prudent to invest money in this stock until there is clarity from the Government and the company about future plans.