Why Vodafone Idea shares rallied 10% today

Shares of Vodafone Idea Ltd (VIL) climbed 10 per cent in Tuesday's trade, with Bharti Airtel Ltd also rising 1 per cent, after the Cabinet approved a proposal to waive the bank guarantees (BG) that telecom operators were required to provide for spectrum purchases up to 2022. Vodafone Idea is seen gaining the most as it owed over Rs 24,700 crore to the government, which was to be submitted from September 2024 to February 2025. They suggested that VIL's debt raise is also contingent on securing BG waivers.

Following the development, Vodafone Idea shares climbed 10 per cent to hit a high of Rs 7.67. Despite this, the stock is down 7 per cent in the past one month. 

Vodafone Idea's net debt (excluding leases, but including interest accrued and not due) increased Rs 9,300 crore sequentially in Q2 to Rs 2.12 lakh crore on dues repayment to vendors/banks and also spectrum acquisition. VIL owed Rs 2.23 lakh crore to the government for deferred spectrum (Rs 1.52 lakh crore) and AGR dues (Rs 70,300 crore).

In a November 15 note, Nomura India said the key takeaways from the post-results conference call with the Vodafone Idea management indicated that VIL has primarily lost its subscribers to BSNL due to tariff hikes announced in July 2024 but the trend has started reversing from August onwards.

The Vodafone Idea management expects the full impact of tariff hikes to be reflected over the next two quarters. VIL will start 5G rollout in key geographies by Q4FY25, the management suggested adding that VIL’s targets to increase 4G population coverage to 120 crore by September 2025E.

VIL added 42,000 4G sites and shut down 19,700 3G sites in Q2FY25. The capex was guided at Rs 8,000 crore for 2HFY25 and Rs 50,000-55,000 crore over the next three years.

"Vi has written to the DoT to waive off bank guarantee (BG) requirement worth Rs 24,700 crore (to be submitted from September 2024 to February 2025) to securitise spectrum installments. We believe Vi’s debt raise is also contingent on securing BG waivers," MOFSL said in an earlier note.

Reliance Jio’s annual BG requirement from previous auctions is estimated at around Rs 4,000 crore, while Airtel’s is about Rs 3,000 crore. Both Jio and Airtel have been prepaying installments on past spectrum dues to minimise interest costs.