Industry Trends     

Published: November 30, 2024
Updated: November 30, 2024

Bank guarantee waiver boosts Vodafone

In some good news for telecom companies and their shareholders, the Centre has accepted the plea of the Cellular Operators’ Association – the organization of telecom companies in India – on revoking the bank guarantee requiment for telecom operators on spectrum purchased before 2022, and the Union cabinet approved the waiver of bank guarantees for telecom operators. As the move is a significant step in easing the sector’s financial burden, the stock market welcomed it and share prices of telecom companies – particularly financially weak companies like Vodafone Idea and MTNL — charted an upward trend.

The moment the news reached the market on November 26 morning (Tuesday), Vodafone Idea’s share price jumped from Rs 98 (Monday closing) to Rs 8.35 on Wednesday, and MTNL saw an uptick from Rs 47.31 to Rs 48.68. Financially strong companies like Reliance Industries and Bharti Airtel ruled steady to better.

VODAFONE DEBT

The move has come as a relief to Vodafone Idea, which owes the government over Rs 24,700 crore in bank guarantees (BG). Indian telecom operators, including Airtel and Vodafone Idea, collectively hold more than Rs 30,000 crore in BG obligations. The report highlights that the Cellular Operators Association of India (COAI) has urged the government to revoke bank guarantee (BG) requirements for telecom operators on spectrum purchased before 2022.

This move is aimed at improving cash flow and en Debt-laden Vodafone Idea had called for the waiver, arguing it would ease its payment burden and allow for additional credit from banks. The company recently missed BG payments, including one for Rs 350 crore due in November and another for over Rs 4,600 crore in September, as per the report.

FISCAL BURDEN

To continue its operations and compete with Airtel and Jio, Vodafone Idea is seeking Rs 25,000 crore in loans and Rs 10,000 crore in BGs or letters of credit. The company recently raised Rs 24,000 crore through equity. The company reduced its consolidated loss to Rs 7,176 crore in the fiscal second quarter ending September 30, compared to a loss of Rs 8,737 crore during the same period last year. Revenue from operations in Q2 rose to Rs 10,932 crore, up from Rs 10,716 crore in the previous year.

Customer ARPU, a key performance indicator, improved to Rs 166, marking a 7.8% sequential increase from Rs 154, driven by a tariff hike. The company’s total subscribers stood at 205 million, with 4G subscribers at 125.9 million, a slight decrease from 126.7 million in Q1FY25. Following the company’s Q2 results, global brokerage firm JP Morgan maintained its ‘neutral’ stance with a price target of Rs 10 per share.