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  • May 31, 2022 - Amazon's Investment in Vodafone Idea: What it Means for Investors...

Amazon's Investment in Vodafone Idea: What it Means for Investors...

May 31, 2022

Investors in Vodafone Idea have breathed a sighed relief. Vodafone Idea share price has been on a roll of late. It started rising this week on 30 May 2022.

Vodafone Idea was on the verge of sinking. Once a popular stock, it has reported huge piles of losses and has huge amounts to pay in AGR dues.

But what has suddenly changed that sent its stock price soaring?

Did Vodafone Idea find a ray of hope in the middle of a deep dark ocean of debt?

Read on to find out...

Ray of hope for Vodafone Idea

Vodafone Idea share price started rising after it was reported that Amazon will invest in Vodafone Idea.


The Ken reported on 30 May 2022 that Amazon is planning to invest Rs 200 bn in Vodafone Idea. Amazon will invest Rs 100 bn in the form of equity and the other half in debt.

This would significantly increase the debt of Vodafone Idea. Because Vodafone Idea will probably receive Rs 100 bn in the form of long term payables.

Post-investment debt will be as high as Rs 2,000 bn. This may raise concerns for investors.

However, an increase in debt may not necessarily mean a huge risk because out of the total debt, 90% is due to the government.

All telecom companies have huge debt on account of AGR dues. Hence, the debt level may increase but it may not be a sign of caution.

Apart from Amazon, other private equity investors may also invest in Vodafone Idea.

The investment proceeds will be used to bid for the auction of the 5G spectrum and for meeting its capital expenditure for providing 5G services.

This probable investment would be a win-win for both parties.

Win for Amazon

For a while now, Amazon has been looking to make investments in a telecom company in India. It is the only major cloud service in India without a telecom partner.

Over two to three years, major cloud service providers like Facebook, Microsoft, and Google have partnered with Reliance Jio Infocomm and Bharti Airtel.

Hence, this investment is a much-needed move for Amazon to strengthen its cloud services in India.

Vodafone Idea is the third-largest telecom company by subscriber base and the second largest by marketcap. These are indeed attractive features to partner with a company.

Also, Amazon can trust the company to work hard for making the most of the money invested because the promoters recently made a huge investment in the company.

Aditya Birla Group and Vodafone plc invested Rs 450 bn in Vodafone Idea through an issue of preferential equity.

Of this Vodafone plc, contributed Rs 337.5 bn, and Rs 112.5 bn was contributed by Aditya Birla Group.

Win for Vodafone Idea

Vodafone Idea was looking for investors for a long time. For nearly around three years Vodafone Idea is looking to raise money to cover its AGR dues and to be able to make investments in the 5G spectrum.

Vodafone Idea has conducted successful tests in Gandhinagar and Pune for developing 5G services. It was in dire need of funds to develop these services.

According to Vodafone Idea's last financial results, the company has seen a growth of one million subscribers and a rise of 22% in its profits.

This is a huge increase in subscribers because before this period, the company was losing, on an average, 1.9 million subscribers every month.

Hence the company is reviving its business. The only thing lacking for Vodafone Idea to be able to give a tough competition to its peers Airtel and Jio was an investment.

Thus, investment from Amazon is the ray of hope that Vodafone Idea desperately needed.

It still remains to be seen whether Vodafone will be able to compete with the likes of 5G stocks in India.

How this deal will impact investors...

Vodafone Idea share price has been trading at a very low price for a long time. Hence, it has become quite unattractive to investors.

But, if Vodafone Idea manages to bag this investment from Amazon, then the scenario might change.

Owing to improving financials and successful 5G tests, the company has shown that it is fundamentally sound.

On top of this if the company wins the 5G spectrum auction, then Vodafone Idea's share price might rise rapidly.

But this is all in a probability stage right now.

We cannot ignore that even if Amazon does invest in Vodafone Idea, its debt level is going to rise very high.

It may not even participate in the auction and the 5G services plan may not go as well as planned.

Hence the news may work out on either side. Stay tuned to this platform to know what happens with the "Vodafone Idea Amazon investment" story.

About Vodafone Idea

Vodafone Idea is an Aditya Birla Group and Vodafone group partnership. It's among India's leading telecom service provider.

The company provides pan India voice and data services across 2G, 3G, and 4G.

For more details about the company, you can have a look at Vodafone Idea's factsheet and Vodafone Idea's quarterly results on our website.

You can also compare Vodafone Idea with its peers.

Vodafone Idea vs Bharti Airtel

Vodafone Idea vs Tata Communications

Vodafone Idea vs MTNL

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Equitymaster requests your view! Post a comment on "Amazon's Investment in Vodafone Idea: What it Means for Investors...". Click here!

1 Responses to "Amazon's Investment in Vodafone Idea: What it Means for Investors..."

pushpa

Aug 3, 2022

Sincere Reporting,not found elsewhere in the mainstream media. keep it up.

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Equitymaster requests your view! Post a comment on "Amazon's Investment in Vodafone Idea: What it Means for Investors...". Click here!