Vodafone idea shares tumbled 25 per cent after the Supreme Court allowed 10 years for telecom companies to pay their AGR dues, which was five years short of what Vodafone Idea sought. Since then, the stock price has jumped 26.5 per cent, recovering all the losses.
Vodafone Idea share price surged 13.52 per cent to Rs 11.25 apiece on BSE as the telecom company is mulling fundraising for payment of adjusted gross revenue (AGR) dues. Also, Vodafone Idea’s board is scheduled to meet on September 4 to consider fundraising in one or more tranches by way of a public issue, preferential allotment, private placement, including a qualified institutions placement or through any other permissible mode. Earlier this week, Vodafone idea shares tumbled 25 per cent after the Supreme Court allowed 10 years for telecom companies to pay their AGR dues, which was five years short of what Vodafone Idea sought. Since then, the stock price has jumped 26.5 per cent, recovering all the losses. “The management of Vodafone Idea is showing positive indication with quick decision making, which suggests that they want to be in the business. The market is reacting to this news now. Technically speaking, holding above Rs 9 is good as the stock prices may go up till Rs 14-17 in the coming few days. While going below Rs 9 will be very risky,” Vishal Wagh, Head of Research, Bonanza Portfolio, told Financial Express Online.
Around 9.45 AM, Vodafone Idea shares were trading at Rs 10.16 apiece, up 7.16 per cent, as compared to a 0.08 per cent gain in the benchmark S&P BSE Sensex. The company has balance dues of Rs 50,400 crore which it requires to pay over the next 10 years as per the Supreme Court’s verdict. Research and brokerage firm Emkay Global Financial Services said in a report that Vodafone Idea has become a special situation stock with a lack of clarity on survival. The brokerage firm has downgraded the stock to ‘sell’ with a revised target price of Rs 6.
Out of total AGR dues of Rs 58,000 crore, Vodafone idea has already paid Rs 7,800 crore so far. According to Hemag Jani Head Equity Strategist, Broking & Distribution, Motilal Oswal Financial Services, assuming 8 per cent interest rate, Vodafone Idea will now have to pay annually Rs 7,500 crore. With zero per cent interest rate, this reduces to Rs 5,000 crore. “VIL with EBITDA of Rs 6000 crore and an annual payment of more than Rs 25,000 crore should find it difficult to manage,” Jani added.
Analysts believe that the company will not be able to pay the AGR dues from internal accrual, so it is very important for them to raise funds from the market to survive in the industry. “If Vodafone Idea will be able to raise the desired amount of funds, it will be a positive trigger for the stock. In the short term, the next set of key triggers for the stock would be the quantum of funds raised, instruments used to raise funds and from whom funds are raised,” said Keshav Lahoti, Associate Equity Analyst, Angel Broking Ltd. He further added that in the current scenario telecom industry is in a sweet spot, as due to the Jio entry, the industry has turned into an oligopoly market. which has huge scope to increase ARPU from current levels. To survive in the industry in the long run, Vodafone Idea needs to raise the required amount of funds, develop a turnaround strategy and hope that industry takes a steep hike in ARPU or suitable floor tariff gets implemented by the TRAI.
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