After the announcement of a major relief package from the government of India of 4 Years of Moratorium for the Telecom Sector and has allowed 100% FDI via automatic route, there is a big question that whether Vodafone Idea Promoters will infuse fresh equity capital into the company. Let’s discuss the same in this article as we move ahead.
Recently there are some reports which are suggesting that Vodafone Plc, is currently not in the mood to infuse fresh equity capital in Vodafone Idea. Hence In this blog we will be doing a 4 point analysis based on Vodafone Idea Survival, the parameter is:
Vodafone Idea Survival- 4 Point Analysis
1) Why Promoters Should Consider Infusing Fresh Equity Capital?
There are some key drivers which suggest or showcase the points that why Promoters should consider infusing Fresh Equity Capital, which are:
- VI Promoters have committed to the Government they will take all necessary steps to ensure VI is revived.
ii) Government’s Move:
- Govt’s Move to provide Financial Relief for VI revival & avoid Duopoly in Indian Telecom Sector
- Key Announcements by Govt:
- 4-year Moratorium on AGR Dues & Spectrum Payments
- Gov. Introduced a Bill to Scrap Retrospective Tax Amendments introduced in 2012
- This could end a decade-old dispute between UK’s Vodafone Group & Indian Government
- After the Telecom Relief Package by Govt, now It's time VI's promoters infuse some capital & signal their intent to rebuild VI to complement the relief package
iii) Investor’s Overseas PE Investors & Lenders:
- Both Potential Overseas Investors & Lenders want VI promoters to demonstrate a keenness to revive VI & their confidence in their own company.
- PE Investors: Promoters’ Equity Capital Infusion could trigger other PE investors also to pump in Capital
- Lenders: Lenders also want VI to start clearing upcoming financial dues, starting December 2021
2) Current Promoter Holding:
Vodafone Idea Survival- Current Promoter Holding
- As of 30th June 2021, Vodafone Plc holds the majority stake of 44.39% in the company followed by Adity Birla Group which owns a 27.66% stake. Overall, the total Promoter’s stake amounts to 72.05%.
- Foreign Institutional Investors (FIIs), Domestic Institutional Investors (DIIs), and Retail Investors hold a stake of 4.29%, 1.30%, and 22.36% respectively
3) Telecom Relief Package- How Vi will be benefited the most?
i) Relief Package Update:
- The government of India finally on Wednesday 16th September 2021 came up with a relief package to revive the telecom sector.
- The package consists of a 4-years moratorium on Spectrum and Average Gross Revenue (AGR) Dues.
- Also, 100% Foreign Direct Investments (FDI) is allowed through automatic route, which was 49% earlier, except China and bordering countries.
- Further, The government will have an option to convert any amount about the deferred payment due into equity at the end of the moratorium/deferment period.
- The government has also done away with the Spectrum Usage Charge (SUC), a substantial levy on telecom service providers (TSPs), from future auctions and increased the tenure of the spectrum of holdings from the existing 20 years to 30 years. This is valid only for future spectrum auctions.
ii) How Will Vi be benefited?
- Currently, Vodafone Idea is having total debt of Rs. 1.91 Lakh Cr. and the current cash balance of the company is Rs. 920 Cr.
- If the Vodafone Idea opts for the relief package of the Government of India, then there could be potential cash flow relief of Rs. 1 Lakh Cr. to the company by 4-Year Moratorium on AGR Dues and Spectrum Payments, and this amount can be used for the growth and expansion of the business. Hence, this relief package looks very beneficial for the Vodafone Idea in any manner,
5) Vodafone Idea- Borrowing Analysis:
- The company’s total borrowings are Rs. 23,400 Cr. towards Banks, and other financial institutions.
- The Interest Payments towards Interest on Bank Loans stands at Rs. 2,600 Cr.
- While the Payment towards Redemption of Non-Convertible Debentures which will start in December 2021 stands at around Rs. 6,000 Cr.
- Summing up, the total liability of the company towards Financial Institutions is around 32,000 Cr.
This telecom relief package of the Government of India looks to very beneficial for the Telecom Companies like Vi and Airtel, for sure Vodafone Idea in the first place. Things can work well from hereon if Promoter infuses fresh equity capital, and there is no significant market share loss for Vi. This discussion on the Vodafone Idea stock is not direct investment advice and hence one should follow due diligence before making any investment decisions.