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Vodafone Idea rallies 14% as Amazon, Verizon look to pick stake

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NEW DELHI: Shares of Vodafone Idea climbed 14 per cent in Thursday’s trade amid a media report suggesting that retailer Amazon and wireless carrier Verizon Communications were looking to invest over $4 billion for a stake in the telecom operator.

The news, which came a day ahead of Vodafone Idea’s board meeting on funding raising, sent shares of Vodafone Idea up by 13.52 per cent to Rs 11.25. The stock had gained 11.86 per cent in the previous session.

People with knowledge of the matter had earlier told ET that the struggling operator is close to tying up funding, as clarity has emerged for the telco on AGR payment timelines. The Supreme Court in its ruling on Tuesday gave the mobile carrier 10 years to settle government dues.

Vodafone Idea, which is a joint venture between Britain’s Vodafone Group Plc and India’s Idea Cellular, had previously said its ability to continue as a going concern rested on a positive outcome of the hearing.

Brokerages such as Motilal Oswal said that the telecom operator can at least manage to pay FY21 dues without hike in tariffs. For that, the company needs to raise at least $3-4 billion through a combination of capital infusion by promoters, rights issue and potential sale of fibre and data-centre assets.

In the year ahead, it would require further funds, in addition to price hikes. Vodafone Idea may also seek additional support from the government in the form of a further two-year moratorium on deferred spectrum liabilities to remain solvent beyond FY23, analysts said.

Motilal Oswal believes that Vodafone Idea would require a total Rs 14,100 cash requirement in FY21, including a capex of Rs 6,400 crore and an upfront amount of Rs 5,800 crore for AGR, along with cash interest cost of Rs 1900 crore. “This is against Rs 5,100 crore of operating cash flow, Rs 7,100 crore from Vodafone PLC, and Rs 4,000 crore from the Bharti Infratel stake sale,” the brokerage said.

In FY22, the company would require an annual Rs 6,600 crore AGR liability payment, which would increase its annual requirement to Rs 16,100 crore. Motilal estimates the company to generate Rs 12,300 crore in operating cash flow and its FY21 cash balance.

“Hence, to offset the cash requirement, it would have to take a 22 per cent price hike to manage the funding requirement. However, FY23 onwards, its cash requirement should increase to Rs 32,700, including an Rs 16,500 deferred-spectrum liability. The company may require a huge round of price hike, along with a capital raise, to offset the gap,” it said.

Edelweiss said that the SC judgement granting 10 years to pay AGR (against 15 years demanded), is likely to further restrain Vodafone Idea’s access to finances.

Analysts noted that the company had increased its Ebitda by mere Rs 1,200 crore, despite 25 per cent tariff hikes in December last year, thanks to subscriber loss. This made them believe that just price hikes may be viable to sort out the company’s cash flow issues.

“Vodafone Idea remains in a tricky situation even as the court verdict offers short-term cash flow relief. The company needs a combination of quick, sharp improvement in pricing, flawless delivery on the fresh opex cut targets, competitive network spends to stem the trend of market share erosion and some equity infusion,” Kotak Securities said.

The brokerage said that the equity infusion will demand confidence in the pricing visibility. “Odds of VIL’s survival without a meaningful price hike are bleak. Equity infusion would demand price hikes as well,” it said.

Vodafone still owes more than Rs 50,000 crore to DoT as per the original demand.

“If the ARPUs move closer to Rs 180-200 along with the retention of existing subscribers, the stress on the telco is expected to ease,” Brickwork Ratings said

Jefferies said that the company would need additional support from the government in the form of a further 2-year moratorium on deferred spectrum liabilities to remain solvent beyond FY23.

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