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Voda-Idea needs reliefs to stay out of NCLT: Rajiv Sharma, SBICAP Sec

Voda CEO comment a reflection of real state of affairs and the challenges the company is facing.

ET Now|
Nov 13, 2019, 10.28 AM IST
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ETMarkets.com
Rajiv Sharma, SBICAP Sec-1200
The market has been factoring is that it is very unlikely that Vodafone Idea would survive and it will be a two-player market, says Rajiv Sharma, Head of Institutional Equity Research, SBICAP Sec. Excerpts from an interview with ETNOW.

There has been a very clear statement and a warning bell from the Vodafone CEO. What do you feel could be in store, given that we have not had any reprieve yet on the entire AGR (adjusted gross revenue) issue in telecom?
A few days back, the government took a step in this direction by forming a committee which is looking into the various demands from incumbents around relief in spectrum payments, relief in penalties and taxes and lower licence fees.

This comment is more a reflection of the real state of affairs of the company, the challenges that they are facing and seems to be a very honest opinion about how things are looking to them.

Does it appear that Vodafone and Idea will have to go to the NCLT way now?
Let me put this in another way. In case, there is no relief such as the whole AGR dispute payment getting spread over 10-15 years and various other demands around GST input credit or lower taxes and even the spectrum moratorium do not kick in and only incremental steps are taken, then yes you may be right. But if some of these demands are taken up and there is a floor tariff on voice, even if it is 10 paisa, that could add Rs 4,000-5,000 crore to the cash flows. The statement from the CEO reflects that the going concern is a challenge which means NCLT could be the next step.

Would you take a long short and tell your investors that whatever could go wrong has gone wrong in terms of regulations and pricing and a year or two years from now, telecom stocks will be higher?
Even the guys who would be best on crystal ball gazing will not be able to do so.

If a clients says I have Bharti and I have Idea-Vodafone, should I sell it or should I buy it, what would be your advice?
Let us take a step back. When this news came in that Vodafone Idea share price was around Rs 5, bucks even without calculating the SUC related payout on the AGR, the negative impact on share per share was 10 bucks. That tells you that a lot depends on what will be the payout for Vodafone Idea. What the market has been factoring in Bharti’s case is that it is very unlikely that Vodafone Idea would survive and it will be a two-player market.

Bharti’s share price has not done that badly and when we speak to investors, we get a sense that they are trying to price that in Bharti share price. But even if it becomes a two-player market, the first step will be that Bharti will have to make those payments which will slowdown Bharti’s capex. Bharti’s tower sharing agreement with Vodafone will come under question and then those benefits around tower saving cost you run a low cost structure even vendors all that will first hit Bharti before the upsides of a two player market.

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