“The current reforms only address the liquidity stress in the sector and does not solve the elevated leverage levels in the sector with the crisis being postponed to FY26-27”
Though the telecom reforms approved by the Cabinet will benefit all telcos in the near term, especially in helping Vodafone Idea stay afloat, analysts do not see these to be a ‘game changer’ that would materially improve the health of the industry. They insist that sustainability of the sector is still predicated on tariff revivals.
“The current reforms only address the liquidity stress in the sector and does not solve the elevated leverage levels in the sector with the crisis being postponed to FY26-27,” JM Financial said in a report. “Sustainability of the sector is still predicated on tariff revivals.”
Likewise, BofA added these reforms remove the temporary stress as it frees near-term cash flows but are not a game changer that would materially improve the health of the industry. “A lack of tariff hike is disappointing,” it added.
According to Motilal Oswal, the measures show a strong intent of the government to address the near term liquidity of Vodafone Idea, but a tariff hike is a must.
“If VI does not manage any capital infusion and tariff hikes, the industry might move towards a duopoly… we believe policy support alone cannot solve VI’s problems. VI needs a tariff hike coupled with capital infusion at the earliest,” Edelweiss noted.
As per Credit Suisse, Vodafone Idea needs break-even ARPU of about ₹240 or 2.3x of current levels by FY26 to meet ₹330 billion of annual spectrum payments and AGR dues that will need to be repaid over the remaining tenure. “This represents a 23% CAGR in ARPU for VIL over next four years and is assuming VIL is able to retain 260 million subscribers,” it added.
On the moratorium of four years provided on spectrum and AGR dues, Nomura said it is a double-edged sword where liquidity improves, but debt woes will expand.
“A moratorium on GoI dues would likely provide ₹410 billion in annual cash-flow relief to the top three private telecos, easing VI’s liquidity concerns. However, with the accrual of interest during moratorium at relatively higher interest rates (8-10%), telcos’ future repayments and overall GoI debt would likely increase sharply.”
The government now also has the option to convert deferred dues, and also annual interest on deferred payment into equities. “In worst case, we believe this could pave way for VIL to become majority owned by the government, thus, increasing going concern visibility,” ICICI Securities said.
It added that tariff hike should happen sooner as the relief package entirely does not address VIL’s cash-flow requirements, and even for raising funds, tariff hike remains critical.
“Bharti and Reliance Jio do not have much to gain from the relief package but improvement in spectrum norms will benefit them during 5G spectrum auction. Indus Towers should see improved outlook with reduced going concern risk on VIL, but growth prospects still remain weak,” it added.
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