Voda Idea zooms 15% as govt grants relief; stock surges 72% in 10 days

Shares of Vodafone Idea (VIL) were locked at the 15 per cent upper circuit at Rs 10.25 on the BSE in early trades on Thursday after the Union Cabinet on Wednesday announced key telecom reforms, including moratorium of telecom dues both adjusted gross revenue (AGR) and Spectrum for 4 years.

As of 09:35 am; a combined 106 million shares changed hands at the counter and there were pending buy orders for 96 million shares on the NSE and BSE. The stock of telecom services provider trades in the futures & option (F&O) segment, which has no circuit limits. With today’s gain, the stock has zoomed 72 per cent in past 10 trading days on the BSE.

According to analysts, the move translates into a relief in the company’s cash outflow by over Rs 65,000 crore. However, with VIL losing market share month-on-month, will it be able to use the improved cash flows to upgrade its network (from 2G to 4G) and get back on track? To be sure, it has got much more than what it had asked from the government— another two-year moratorium only on spectrum payments, the Business Standard reported. CLICK HERE TO READ FULL REPORT

ICICI Securities believe, the spectrum moratorium is likely to provide annual cash flows relief of around Rs 24,000 crore and Rs 12,000 crore for VIL and Airtel, respectively for next 4-year period, effectively ensuring VIL survival hopes.

Similarly, the other measures, being prospective, will improve the overall health of sector. We note that while cash flow relief improves the investment ability of Airtel to an extent, VIL would need some fund raise (~Rs 6000 crore of NCD is due for repayment in few months and Rs 13,000 crore of guarantee renewal along with need to step up capex). We also believe that given the relief, any major tariff hike could be postponed. Airtel, therefore, remains poised to be key beneficiary (alongwith Jio), with VIL ability of invest remaining restricted, the brokerage firm said in a note.

The government announced a relief package for the telecom sector, providing a near term liquidity solution, particularly helpful to VIL, and addressed multiple long term issues of the sector. These measures show a strong intent of the government to address the near term liquidity of VIL. But a tariff hike is a must and VIL investment the business is a key monitorable, Motilal Oswal Securities said.

Meanwhile, Bharti Airtel has slipped into red after registering a fresh high at Rs 743.90 at the opening bell. The stock is now down 0.2 per cent at Rs 724, with a volume of around 26 lakh shares on the BSE.