Vodafone Idea shares gain 13%; struggling telco looks to raise funds, analysts remain wary

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September 2, 2020 11:10 AM

Vodafone Idea shares nose-dived, a massive 25%, on Tuesday after the Supreme Court gave telecom companies 10 years to pay their AGR dues, which was a decade short of what the government had suggested.

Vodafone Idea said that the Board of Directors will meet to consider and evaluate any and all proposals for raising of funds in one or more tranches.

A day after falling deep into the red, shares of struggling telecom giant Vodafone Idea were seen surging 13% to trade at Rs 10 per share. Vodafone Idea shares nose-dived, a massive 25%, on Tuesday after the Supreme Court gave telecom companies 10 years to pay their AGR dues, which was a decade short of what the government had suggested. However, late on Tuesday the telecom company informed the bourses that its Board of Directors will meet this week to consider raising funds. The move comes after experts questioned whether the Supreme Court’s decision would make the telecom sector a duopoly with the exit of Vodafone Idea owing to its weaker financial position.

In a filing to the stock exchanges on Tuesday night, Vodafone Idea said that a meeting of the Board of Directors of the Company is scheduled to be held on September 4. Vodafone Idea said that the Board of Directors will meet to consider and evaluate any and all proposals for raising of funds in one or more tranches. The company could raise the funds it requires to stay afloat through a public issue, preferential allotment, private placement, including a qualified institutions placement or through any other permissible mode. 

“Assuming 8% interest rate, Bharti Airtel and Vodafone Idea will now have to pay annually Rs 3,900 crore and Rs 7,500 crore respectively.” said Hemag Jani Head Equity Strategist, Broking & Distribution, Motilal Oswal Financial Services. Whereas, Kotak Securities, on the basis of rough calculations has pinned an estimated annual payment of Rs 8,900 crore on Vodafone Idea. “Based on our math, Vodafone Idea needs to double its ARPU, to Rs 245 from Rs 121 in 4QFY20, by Financial Year 2023E for it to be able to achieve cash flow breakeven,” Kotak Securities added. 

Vodafone Idea’s AGR dues stood at Rs 58,000 crore, of which the telecom company has paid Rs 7,800 crore so far. Meanwhile, Bharti Airtel’s AGR Dues were at Rs 44,000 crore of which it has paid Rs 18,000 crore to the Government. Analysts at Kotak Securities believe that Vodafone Idea could find it difficult to survive without a tariff hike in the telecom sector. “The now-cemented still-pending AGR dues of VIL takes the PV of total government dues owed by VIL to Rs 1.5 lakh crore, including Rs 92,300 crore of deferred spectrum liabilities,” Kotak Securities said.

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