Vodafone Idea to MTNL — why are telecom stocks skyrocketing?

Stock Market Today: Telecom stocks saw a sharp uptick in early morning trade on Tuesday, November 26, following reports that the Union Cabinet approved the waiver of bank guarantees for telecom operators. This move is seen as a significant step in easing the sector's financial burden.

Reacting positively to these developments, shares of Vodafone Idea surged by 15%, reaching ₹8 each, while MTNL shares gained nearly 9%, trading at ₹51.45 each. Bharti Airtel also saw mild gains, with its shares up by 0.30%, trading at ₹1583 apiece.

The Union Cabinet approved the waiver of bank guarantees for telecom operators on spectrum purchased before 2022, Moneycontrol reported, citing sources.

The move has come as a relief to Vodafone Idea, which owes the government over ₹24,700 crore in bank guarantees (BG), sources told the news agency. Indian telecom operators, including Airtel and Vodafone Idea, collectively hold more than ₹30,000 crore in BG obligations.

The report highlights that the Cellular Operators Association of India (COAI) has urged the government to revoke bank guarantee (BG) requirements for telecom operators on spectrum purchased before 2022.

This move is aimed at improving cash flow and enabling greater network investment. While the 2021 telecom reforms removed the BG requirement for spectrum bought from 2022 onwards, operators are still required to provide BGs for deferred payments on pre-2022 spectrum.

Debt-laden Vodafone Idea had called for the waiver, arguing it would ease its payment burden and allow for additional credit from banks. The company recently missed BG payments, including one for ₹350 crore due in November and another for over ₹4,600 crore in September, as per the report.

To continue its operations and compete with Airtel and Jio, Vodafone Idea is seeking ₹25,000 crore in loans and ₹10,000 crore in BGs or letters of credit. The company recently raised ₹24,000 crore through equity.

The company reduced its consolidated loss to ₹7,176 crore in the fiscal second quarter ending September 30, compared to a loss of ₹8,737 crore during the same period last year. Revenue from operations in Q2 rose to ₹10,932 crore, up from ₹10,716 crore in the previous year.

Customer ARPU, a key performance indicator, improved to ₹166, marking a 7.8% sequential increase from ₹154, driven by a tariff hike.

The company’s total subscribers stood at 205 million, with 4G subscribers at 125.9 million, a slight decrease from 126.7 million in Q1 FY25. Following the company's Q2 results, global brokerage firm JP Morgan maintained its 'neutral' stance with a price target of ₹10 per share. While Nomura India has also reaffirmed its 'Buy' rating on the stock with a a target price of ₹14.

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