Vodafone Idea Shares Jump 18% as Cabinet Waives Bank Guarantees

resr 5paisa Research Team

Last Updated: 26th November 2024 - 01:05 pm

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Vodafone Idea share price (VIL) soared by over 18% to an intraday high of ₹8.28 on the NSE, marking their biggest single-session gain in over 10 months. It also surpassed the 20-day moving average. This rally follows a pivotal decision by the Union Cabinet to waive bank guarantees (BGs) for telecom spectrum payments acquired before 2022, easing financial pressure on the sector. The move has brought renewed optimism to investors, with VIL emerging as a key beneficiary.

 

 

The Cabinet’s decision comes as part of its ongoing efforts to stabilize the telecom industry and provide relief to struggling companies like Vodafone Idea. Over ₹30,000 crore in financial commitments throughout the sector are anticipated to be released by the waiver, with VIL alone expecting to gain over ₹24,700 crore. The company may be able to better manage its investments in 4G and 5G networks and greatly increase its cash flow with this financial boost.

Vodafone Idea has already announced ambitious plans for a ₹50,000–55,000 crore capex over the next three years. The company has partnered with suppliers like Nokia, Ericsson, and Samsung to strengthen its network infrastructure, allocating ₹30,000 crore toward radio equipment. VIL plans to accelerate its 5G rollout in the coming years.

The waiver aligns with broader telecom reforms introduced in 2021, which eliminated the BG requirement for spectrum purchased from 2022 onwards. By extending the relief to older spectrum acquisitions from auctions held in 2012, 2014, 2015, 2016, and 2021, the government seeks to further ease financial burdens and ensure the stability of the telecom ecosystem.

While the relief offers much-needed breathing room for VIL, the company faces ongoing challenges. It has missed recent payments on previous guarantees, including ₹350 crore in November and ₹4,600 crore in September, highlighting its precarious financial position. However, VIL has been proactive in raising funds, securing ₹24,000 crore through equity and planning to raise an additional ₹35,000 crore via loans and guarantees.

The Cabinet's decision was well received by the larger market as well. The BSE Telecom index led the sectoral rise by increasing 1.8%, while shares of Bharti Airtel, Reliance Industries, and Indus Towers experienced gains of up to 5%. This demonstrates how the waiver will have a broad effect on the industry, benefiting a number of participants.

For Vodafone Idea, this development could mark a turning point. Combined with an anticipated tariff hike of 15–20% over the next 15 months and improved customer acquisition strategies.

In Conclusion

The Union Cabinet’s waiver of bank guarantees for pre-2022 spectrum purchases is a significant step toward revitalizing the telecom sector. For Vodafone Idea, the relief could provide the much-needed support to address financial challenges, fund network expansions, and improve competitiveness. While challenges remain, this move injects fresh hope into the company's turnaround journey and the sector's overall stability.

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