Home >Markets >Mark To Market >Voda Idea’s new innings breathes fresh life into telco, tower stocks

The Supreme Court’s decision last week to give a reprieve to telcos lifted the spirits of investors in both Vodafone Idea Ltd and Bharti Infratel Ltd. While shares of Vodafone Idea have risen 40% since, Infratel’s have jumped 20%. The latter’s market cap has risen by over 7,000 crore to about 42,700 crore.

The chances of India continuing to be a three-player market for telcos have increased, which is a relief for the tower infrastructure company.

The board of Vodafone Idea approved a crucial fundraising plan last week, although it is critical that a deep-pocketed strategic investor is roped in soon. On Monday, the company also announced the completion of the merger of Vodafone India and Idea Cellular and launched a new unified brand—Vi.

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These announcements have evidently reassured investors, with Infratel shares continuing their uptrend on Monday. Vodafone Idea is a large customer of Infratel.

“This suggests that they are not discontinuing operations any time soon. They are playing their second innings with gusto. It means the three-player telecom is continuing," said an analyst on condition of anonymity.

Similar to Airtel, Vodafone Idea is also building the case for tariff hikes, terming them as unsustainably below cost. While it’s still not clear when the tariff hikes will fall in place, analysts expect action on the front soon as it is the only way for the company to survive in the medium term. Besides, it will help the company sustain investments in its network. Voda Idea has been lagging in 4G capex, which has resulted in severe market share losses. “Hinting at tariff hikes, Voda Idea’s CEO mentioned that the company is ready to take the first step to increase tariffs. This is an essential requirement for the company with net debt of 1.7 trillion (including AGR liabilities) to furnish its annual cash obligations," said an analyst at another broking firm.

While many things need to fall in place for Vodafone Idea to survive, investors are betting that it has started in earnest and the above-mentioned measures can support the recovery at Bharti Infratel too.

Total co-locations or tenancies on telecom towers improved last fiscal after two years of fall. Net tower additions in FY20 were also more than the previous year. Rising data consumption and need for better networks post covid-19 ensures long-term demand for telecom tower services.

That said, much depends on how Voda Idea’s growth pans out. It not only has to maintain its current scale of operations but also needs to have a growth outlook to provide meaningful opportunities for service vendors.

“Scaledown of operations by Vodafone Idea in weaker circles is a risk. It also runs the risk of rental re-negotiations as tenancies come out of lock-in in FY22. Increase in industry tariffs and/or equity infusion in Vodafone Idea are potential triggers," analysts at Dolat Capital Market said in a note.

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