CHENNAI: Long-awaited and much-needed, the government’s big bang telecom sector reforms announced on Wednesday have lifted the sword hanging over Vodafone Idea’s (VIL) head-at least, temporarily. The company’s stock reflected the magnitude of the relief with prices jumping by 26% on Thursday.
However, since the benefits granted are industry-wide, the company will have to wage an uphill battle to fix its weak operational metrics and take on better situated rivals such as Bharti Airtel and Reliance Jio.
The moratoriums for AGR and spectrum dues are also seen as giving temporary cash-flow relief, since VIL’s annual cash outgoes are expected to explode at the end of these four years.
If VIL opts for the moratorium as expected, Emkay Global analysts Naval Seth and Sonali Shah note that “annual cash outgo towards dues will reduce from Rs 25,300 crore to Rs 3,100 crore over FY23-26E, with an option of converting the interest on deferred payment into equity for the government”.
However, once the moratorium ends, these annual payouts would increase to Rs 47,700 crore from FY27.
According to Motilal Oswal analysts, the moratorium helps address immediate liquidity problems, but that...“ballooning debt and annual EMI after four years will be difficult to address”.
For instance, the interest component for the moratorium period at the end of four years is expected to be as high as Rs 50,000 crore - Rs 43,200 crore on spectrum dues and Rs 9,970 crore on AGR dues.
While the government has given itself the option to convert this interest into equity at the end of the relief period, even this is likely to be fraught with difficulty, since the company’s market capitalisation (m-cap) currently stands at just Rs 39,000 crore.
Bharti Airtel chairman Sunil Mittal said in a briefing on Thursday that Airtel would opt to take the moratorium and would receive a breather of Rs 35,000 crore-Rs 40,000 crore annually, alongside an annual interest cost of Rs 7,000 crore. He added that if Airtel opted for equity conversion of interest cost, it might result in a 2-3% stake for the government. According to Motilal Oswal analysts, Airtel’s accumulated interest costs at the end of four years is set to be Rs 31,800 crore-Rs 26,270 crore on spectrum dues and Rs 5,410 crore on AGR dues. Mittal also reiterated the need to improve the tariff equation.