Jio and Airtel’s popularity is literally giving Vodafone Idea a run for its money. Analysts are saying that steps taken by the government for the telecom operator to pull it from the financial bailout of Vodafone Idea (VIL) eventually won’t be adequate, that too in the presence of its competitors Reliance Jio Infocomm and Bharti Airtel.
Deutsche Bank said, “The government will find it too expensive to provide a large enough fix needed to prop up VIL for anything other than the medium-term.” The German investment bank added that “The Aditya Birla Group (one of VIL’s co-promoters) may even consider getting Vodafone Idea to go into bankruptcy on the chance that it may be able to repurchase the rump of the business.”
The Deutsche Bank also added that this would be a vague area as the government is avoiding the promoters who are buying assets of their failed companies for fear of regulatory arbitrage, even though when it comes to self-declared bankruptcies, the rules are not completely clear.
Vodafone Idea’s chairman Kumar Mangalam Birla said that the firm will reach the end of its road if there’s isn’t any government or judicial relief. To jog your memory, Vodafone Idea faces over ₹53,000 crores (530 billion) in AGR-related statutory dues.
Deutsche Bank is of the opinion that Vodafone Idea needs significant government relief, more large price hikes, and its market shareholding fairly firm to survive. “But we believe it will get two out of these three (requirements) at best, which won’t be enough.” This poses an advantage to Jio, as it could push for greater market share gains along with proactive measures like aggressively adding customers. Analysts see the next 9-12 months in the telecom world as a private duopoly.
According to CSLA, Jio’s income could easily double in two years to ₹52,400 crores. This will be perfectly timed as its mobile user base would touch 500 million, which would be driven by an amalgamation of its market share and tariff hikes. According to the brokerage, “Jio’s Ebitda to double by FY22 to ₹52,400 crores ($7.4 billion) and pegs the enterprise value of its mobile business at $66 billion.”
Morgan Stanley reports that Jio’s low 4G network and its footprint could also drive a log of user base if the telecom industry combines into a two-player market. According to Deutsche Bank, “Jio should also be able to increase its spectrum share afford-ably in the upcoming 5G auction, especially with at least one of its competitors (VIL) in financial peril”.