Amazon’s investment in Vodafone Idea: what it means for investors…
Vodafone Idea was about to go under. Once a popular stock, it has suffered huge losses and has huge sums to pay in AGR dues.
But what suddenly changed to send its stock price soaring?
Has Vodafone Idea found a ray of hope amid a dark and deep ocean of debt?
Keep reading to find out…
Ray of hope for Vodafone Idea
Vodafone Idea stock price started to rise after it was announced that Amazon would invest in Vodafone Idea.
The Ken reported on May 30, 2022 that Amazon plans to invest ₹200 billion in Vodafone Idea. Amazon will invest ₹100 billion in the form of equity and the other half in the form of debt.
This would significantly increase Vodafone Idea’s debt. Because Vodafone Idea will probably receive ₹100 billion in the form of long-term debt.
Post-investment debt will be as high as ₹2 trillion. This may worry investors.
However, an increase in debt does not necessarily mean a huge risk, because of the total debt, 90% is owed to the government.
All telecom companies have huge debt due to AGR dues. Therefore, the level of debt may increase, but this may not be a sign of caution.
Apart from Amazon, other private equity investors can also invest in Vodafone Idea.
Proceeds from the investment will be used to bid for the 5G spectrum auction and to cover its capital expenditure to provide 5G services.
This likely investment would be a win-win for both parties.
Earn for Amazon
For some time, Amazon has been looking to invest in a telecommunications company in India. It is the only major cloud service in India without a telecom partner.
For two to three years, major cloud service providers such as Facebook, Microsoft and Google partnered with Reliance Jio Infocomm and Bharti Airtel.
Therefore, this investment is a must move for Amazon to strengthen its cloud services in India.
Vodafone Idea is the third largest telecommunications company by number of subscribers and the second by market capitalization. These are indeed interesting characteristics to associate with a company.
Additionally, Amazon can trust the company to work hard to get the most out of the money invested, as developers have recently made a huge investment in the company.
Aditya Birla Group and Vodafone plc have invested ₹450 billion in Vodafone Idea via a preferential capital increase.
Of this Vodafone plc, contributed ₹337.5 billion, and ₹112.5 billion was contributed by Aditya Birla Group.
Win for Vodafone Idea
Vodafone Idea had been looking for investors for a long time. For almost three years or so, Vodafone Idea has been looking to raise funds to cover its AGR dues and be able to invest in 5G spectrum.
Vodafone Idea has conducted successful trials in Gandhinagar and Pune to develop 5G services. She badly needed funds to develop these services.
According to Vodafone Idea’s latest financial results, the company reported growth of one million subscribers and a 22% increase in profits.
This is a huge increase in subscribers as before this time the company was losing an average of 1.9 million subscribers every month.
The company is therefore relaunching its activity. The only thing Vodafone Idea lacked to be able to compete with its peers Airtel and Jio was an investment.
So Amazon’s investment is the silver lining Vodafone Idea desperately needed.
It remains to be seen whether Vodafone will be able to compete with 5G stocks in India.
What will be the impact of this agreement on investors…
Vodafone Idea stock price has been trading at a very low price for a long time. Consequently, it has become quite unattractive to investors.
But if Vodafone Idea manages to recover this investment from Amazon, the scenario could change.
Thanks to improved finances and successful 5G tests, the company has shown that it is fundamentally sound.
Additionally, if the company wins the 5G spectrum auction, Vodafone Idea’s share price could rise rapidly.
But all of that is in a probability phase right now.
We cannot ignore that even if Amazon invests in Vodafone Idea, its level of debt is going to rise very high.
It may even not participate in the auction and the 5G service plan may not go as well as expected.
Therefore, news can work on both sides. Stay tuned to this platform to know what is happening with the “Vodafone Idea Amazon Investment” story.
About Vodafone Idea
Vodafone Idea is a partnership of Aditya Birla Group and Vodafone Group. It is one of the leading telecommunications service providers in India.
The company provides voice and data services across India over 2G, 3G and 4G networks.
For more details about the company, you can check out the Vodafone Idea fact sheet.
Disclaimer: This article is provided for informational purposes only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from equitymaster.com