The cabinet on Wednesday approved a relief package for the telecom sector while announcing a moratorium of four years on Adjusted Gross Revenue (AGR) dues. The deferred payments cycle will begin from October 1. The so-called relief package will help India's three major carriers especially the embattled Vodafone Idea.
Tarun Lakhotia, Director of Kotak Institutional Equities in an interview with CNBC-TV18 shared his views on the new developments and impact on the telecom sector.
When asked if tariff increases were coming, Lakhotia said not raising tariffs would be an opportunity loss for the industry.
"This could have been the best time where the government has at least resolved the cash flow issue for the next four years and given the industry an indication. This structure of three plus one is something which they would ensure to continue in the future. From an industry perspective, it is better that they will fight on other fronts like upgrading network infrastructure, providing better offerings to the customers and not resort to keeping tariffs on the lower side. So, the sector
cannot be better than where we are right now," he added.
Do you see Vodafone Idea
’s Rs 25,000 crore of fundraise going through now with the relief package in place, because there is a concern which is raised, they're saying that after four years Vodafone Idea’s interest component of its dues will be quite significant and therefore, the company might opt to convert that interest portion of their due into government stake, which then will bring about a significant dilution which could put our prospective investors if they want to raise funds right now?
Lakhotia said, “On that front, it is not just the interest amount, even the deferred amount which will be huge at the end of four years, would be difficult for Vodafone Idea
to manage, even if tariffs were 3x or 5x of where they are right now. So, that means even some portion of that is the government may need to convert into equity which could lead to a higher dilution.”
It is important that at least the government making their mandate clear that the cash flow issue is something which we have resolved for now and the balance sheet is something which they have left for the companies and delayed it for the time being. So capital infusion could probably go through provided the promoters also put some skin in the game here, here further added.
Speaking on Bharti Airtel
stock, Lakhotia said he has a buy rating on the stock. The industry transition towards higher ARPUs is something that will be accelerated in the next few years and that would be beneficial to its revenue and earnings trajectory, which could continue to drive the stock higher from an earnings upgrade and multiple re-rating along with it.
On Vodafone Idea, he said, given the large liabilities which are still on the books, even after deferral, those have to be taken care of in the future as well either through equity dilution or by some measures from the government side. So, it is still difficult to attain an equity value here.
“We need a much higher revenue base for the industry to operate with, for Vodafone idea to get to you know some sort of equity value which could be unjustified at the current juncture. So we do not rate the stock now. We have a rating suspended here and it could continue like that for now and wait for the industry economics to improve before looking at the name from a value creation standpoint,” said Lakhotia.
For the full discussion, watch video