After a huge drop on Tuesday, Vodafone Idea stock is surging today. What do the brokers have to say?

  • Jan. 12, 2022, 12:57 p.m.

Shares of Vodafone Idea (Vi) surged over 10% at ₹13 apiece on the BSE in Wednesday's early deals after the stock tanked nearly 21% yesterday as the debt-ridden firm decided to opt for converting interest and AGR dues to the government into equity, which will lead to the govt owning a 35.8% stake in the telco.

A day later, VIL's MD and CEO, Ravinder Takkar, on Wednesday clarified that the government will neither take a seat on the Vodafone Idea Board nor run or manage the company.

 

Analysts at Jefferies said that the government's recent measures, which offer a four-year moratorium on AGR and spectrum repayments, will provide a ₹250 billion annual cashflow relief to Vodafone Idea and improve its chances of surviving for longer. Furthermore, "with Vi opting for conversion of interest on deferred payments to equity, the government will own a 36% stake, which largely eliminates the possibility of an abrupt closure of its operations."

The government gave telecom operators an option of paying interest for the four years of deferment on the deferred spectrum instalments and AGR dues by way of conversion into equity of the NPV (Net Present Value) of such an amount.

Market share gains from Vodafone Idea will likely moderate in FY23 given the improvement in near-term cashflows. Furthermore, given that the government will be the biggest lender and equity holder in VIL, Jefferies expects Reliance Jio and Bharti Airtel to shift their focus away from market share gains towards market expansion.

This rescue plan was crucial for Vodafone Idea, which has been losing customers to bigger rivals, especially after Reliance Jio sparked a brutal price war in 2016 and quickly clinched market share to become the top player. "

While the telecom package has definitely provided temporary relief to the company, significant ARPU growth remains the most critical factor for the company’s long-term viability. For ARPUto sustain the leverage, it needs to increase to ₹250 from its current INR109 over the next 3–4 years. We await further details regarding the conversion before making any changes to our estimates. Maintain ’REDUCE/SU’ with an unchanged target price of ₹7, "said Edelweiss in a note.

Shares of Vodafone Idea (Vi) surged over 10% at ₹13 apiece on the BSE in Wednesday's early deals after the stock tanked nearly 21% yesterday as the debt-ridden firm decided to opt for converting interest and AGR dues to the government into equity, which will lead to the govt owning a 35.8% stake in the telco.

A day later, VIL's MD and CEO, Ravinder Takkar, on Wednesday clarified that the government will neither take a seat on the Vodafone Idea Board nor run or manage the company.

 

Analysts at Jefferies said that the government's recent measures, which offer a four-year moratorium on AGR and spectrum repayments, will provide a ₹250 billion annual cashflow relief to Vodafone Idea and improve its chances of surviving for longer. Furthermore, "with Vi opting for conversion of interest on deferred payments to equity, the government will own a 36% stake, which largely eliminates the possibility of an abrupt closure of its operations."

The government gave telecom operators an option of paying interest for the four years of deferment on the deferred spectrum instalments and AGR dues by way of conversion into equity of the NPV (Net Present Value) of such an amount.

Market share gains from Vodafone Idea will likely moderate in FY23 given the improvement in near-term cashflows. Furthermore, given that the government will be the biggest lender and equity holder in VIL, Jefferies expects Reliance Jio and Bharti Airtel to shift their focus away from market share gains towards market expansion.

This rescue plan was crucial for Vodafone Idea, which has been losing customers to bigger rivals, especially after Reliance Jio sparked a brutal price war in 2016 and quickly clinched market share to become the top player. "

While the telecom package has definitely provided temporary relief to the company, significant ARPU growth remains the most critical factor for the company’s long-term viability. For ARPUto sustain the leverage, it needs to increase to ₹250 from its current INR109 over the next 3–4 years. We await further details regarding the conversion before making any changes to our estimates. Maintain ’REDUCE/SU’ with an unchanged target price of ₹7, "said Edelweiss in a note.

Author : Rajdhani Delhi Representative

Rajdhani delhi representative

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