Vodafone Idea's Stake Pick Up By Government Not Just About Numbers, Say Industry Experts
The government's stake acquisition in Vodafone Idea would be good for competitors, and other telecom firms like Indus Towers, experts said.
Government's debt conversation is not about numbers, but is for keeping Vodafone Idea Ltd. going, said Sanjay Kapoor, former chief executive officer of Bharti Airtel Ltd. His comments come days after the government announced it would pick up more stake in the debt-laden telecom operator in lieu of spectrum auction dues.
The recent conversion of spectrum liability to equity takes the government stake in Vodafone Idea close to 49%, with the promoter stake falling to just above 25%.
"With this respite that they get, their outflows required for their immediate future are less and therefore they can borrow more money from the market to pump into their capex," Kapoor told NDTV Profit.
EY India's Prashant Singhal echoed the sentiment, and highlighted that government is making it clear that they are keen on operating Vodafone Idea and increase their shareholding. "Very few companies globally would be sitting on 200 million subscribers," he said.
Satya N Gupta, ex-principal advisor, TRAI, said that he was unable to understand why the government is not becoming a part of the board. Three big players can survive in any market, according to him.
"VIL will have to reach into areas where other competitors have not gone, with the government's backing," he said.
According to Kapoor, this move is also positive for competitors Jio and Bharti Airtel, as they are not trading down on the price discounting route. "More players in the market is always better from the consumer and government's perspective.
"But, this does not have ramifications for them only, it has ramification for Indus Towers as well, as uncertainties reduce. The discount in Indus Towers' valuation should also reduce," Kapoor said. Top players in telecom space in high ARPU markets have stretched balance sheets, he said.
Indian telecom companies should be focusing on increasing Average Revenue Per User, Singhal told NDTV Profit.
"We had similar questions on survivability about BSNL, which has since turned around and become profitable," Singhal noted.
Kapoor doesn't see Jio and Airtel relenting to another brand, given their size. "I see VIL as a distant third competitor at best," he said.
The government is playing a much larger role than wearing just an investor's hat, he said.
Shares of Vodafone Idea surged 25.88% to Rs 8.56 apiece to hit upper circuit. This is the highest level since Feb. 21. The stock pared gain to trade 19.56% higher at Rs 8.13 apiece, compared to a 1.55% decline in the NSE Nifty 50 at 2:55 p.m.
