Telecom stocks soar: What's driving MTNL, Vodafone Idea, and Airtel's surge?

By Ajay Joseph | First Published Nov 26, 2024, 11:23 AM IST

The waiver is especially significant for Vodafone Idea, which reportedly owes over Rs 24,700 crore in bank guarantees. Overall, Indian telecom operators, including Airtel and Vodafone Idea, hold BG obligations exceeding Rs 30,000 crore.

Following reports that the Union Cabinet had approved the waiver of bank guarantees (BGs) for telecom operators on spectrum purchased before 2022, telecom stocks on Tuesday (November 26) witnessed a sharp rise. This decision is expected to alleviate financial pressures on the struggling sector.

Shares of Vodafone Idea soared 15%, reaching Rs 8 per share, while MTNL shares surged nearly 9% to Rs 51.45. Bharti Airtel also recorded gains, trading at Rs 1,583, up by 0.30%.

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Earlier, the Cellular Operators Association of India (COAI) had urged the government to eliminate BG requirements for spectrum acquired before 2022 to improve cash flow and enable greater network investments. The 2021 telecom reforms had already removed BG mandates for spectrum purchased from 2022 onwards.

Debt-laden Vodafone Idea had been vocal about the necessity of this relief, arguing it would ease its payment burden and unlock additional credit from banks. The company recently defaulted on BG payments, including Rs 350 crore due in November and Rs 4,600 crore in September.

In a bid to stabilise operations and compete with industry leaders Airtel and Jio, Vodafone Idea is seeking Rs 25,000 crore in loans and Rs 10,000 crore in BGs or letters of credit. The firm recently raised Rs 24,000 crore through equity.

Despite its financial struggles, Vodafone Idea managed to reduce its consolidated loss to Rs 7,176 crore in Q2 FY25, down from Rs 8,737 crore a year ago. Revenue from operations rose slightly to Rs 10,932 crore. The company also reported an improvement in Average Revenue Per User (ARPU) to Rs 166, up 7.8% sequentially.

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Subscriber data, however, showed a slight decline, with total subscribers at 205 million and 4G users decreasing to 125.9 million from 126.7 million in Q1 FY25.

Global brokerage firms responded to the developments with optimism. JP Morgan maintained its 'neutral' stance on Vodafone Idea, setting a price target of Rs 10 per share, while Nomura India reaffirmed its 'Buy' rating with a target of Rs 14 per share.

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