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Tuesday,07-July-2020

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Rs 25,000 crore, rights issue not enough for Vodafone and Idea

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As telecom major Vodafone Idea (VIL) opened its rights issue on Wednesday for the next two weeks with an aim to raise Rs 25,000 crore, sector experts say the fund would not be enough for the company given its high debt and the highly-competitive market.

In the meantime, Bharti Airtel too has announced that on April 24 its committee for fund infusion would decide on the shareholders who would be able to participate in its rights issue for around Rs 25,000 crore.

Analysts say Airtel is in a better financial position than Vodafone Idea and unlike the newly-merged entity, the amount raised from the rights issue by Sunil Bharti Mittal-led Airtel would be sufficient for the time being.

Vodafone Idea is offering 2,000 crore shares at a price of Rs 12.50 apiece. The entitlement ratio of the issue, which will close on April 24, has been fixed at 87 rights shares for every 38 currently held.

Under rights issue, existing shareholders are offered to purchase additional stock shares, known as subscription warrants, in proportion to their existing holdings.

In a rights offering, the subscription price at which each share may be purchased is generally discounted relative to the current market price. Rights are often transferable, allowing the holder to sell them in the open market.

“Vodafone idea is very stretched because their Ebitda has fallen to about $650 million(around Rs 4,495 crore), their debt is also quite high and their leverage as measured by debt-to-Ebitda too is high,” Nitin Soni, Director for corporate ratings at Fitch Ratings, told IANS.

He said that Airtel is a diversified company and has operations in Africa as well while Vodafone Idea is a telecom-specific company which has severely deteriorated its financials.

“In that light, their (Airtel’s) equity injection is sufficient and they are going to raise another $3 billion from African IPO and sale of assets, but for Vodafone idea it is insufficient and they might have to raise more money in future because their capex plan is about $3.5-4 billion,” Soni said.

He added: “They (Vodafone Idea) need to invest heavily to avoid any network congestion and their Ebitda has fallen much more than Bharti’s. So all in all they would probably need more equity, or stake or sale of other assets”.

According to the company’s promoter shareholders, Vodafone Group and Aditya Birla Group have confirmed their participation of up to Rs 11,000 crore and up to Rs 7,250 crore, respectively, in the rights issue.

“It is not compulsory that the rights issues of companies are fully subscribed over time, it is up to the market conditions and existing shareholders, and whether they rely on the management and the future expansion plans of the company,” said Manish Yadav, Head of Research, CapitalAim.

Amit Gupta, Co-Founder and Chief Executive Officer at Trading Bells, said the fund would work for two or three quarters but the company would require additional infusion after that.

“Vodafone Idea has a overall debt of Rs 1,23,000 crore with a gross debt-to-Ebitda (earnings before interest, tax, depreciation and amortisation) ratio of 33.30. After infusion of the equity capital through the rights issue, the debt would reduce to Rs 98,000 crore and its debt-to-Ebitda ratio would decline to 26.50 which would still be higher than that of its competitors Bharti Airtel and Reliance Jio,” Gupta said.

The company is also looking to sell its 11.5 per cent stake in Indus Towers in the next two to three months and raise around Rs 5,500 crore.

Off late, apart from loss in revenue, Vodafone Idea has also lost a large number subscribers to both Bharti Airtel and Reliance Jio.

Vodafone Idea, the largest telecom operator in terms of subscribers, lost 35.87 lakh users taking its total base to 41.52 crore while both Jio and Airtel added to their subscriber base.

From the industry perspective, Prashant Singhal, Emerging Markets TMT Leader at Ernst & Young, said that although the rights issue would help in reducing the debt, the sector being a capital intensive industry, companies would continue to need capital for expanding and investing their networks.

He said that rationalisation of tariffs, which are extremely low currently, would give a much-needed boost to the sector, apart from the capital infusion.

Business

No economic logic now for diesel cars: Maruti Suzuki

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Maruti-Suzuki

With parity between the prices of petrol and diesel, there is no economic logic for buying diesel cars as with the same running cost, the acquisition cost differential is very high.

In an interview with IANS, Shashank Srivastava, Executive Director (Marketing & Sales), Maruti Suzuki India Limited said that under BS VI, the differential between diesel and petrol cars is to the tune of Rs 1.25 to Rs 2 lakh. Srivastava said that at the same running cost, with petrol and diesel at the same price, or even diesel higher in some states, there is no economic logic for buying diesel cars.

He said that till 7-8 years back, diesel was cheaper by Rs 32 compared to petrol and diesel cars were 60 per cent of total sales.

Thereafter, the government allowed free float of fuel prices and last year the differential fell to Rs 7 and diesel car share fell to 28 per cent.

Srivastava said in the last quarter, it was only 17 per cent, the share has been falling due to the convergence between the petrol and diesel prices. In the smaller cars segment, it was only 5 per cent.

Currently, there is almost parity in diesel and petrol prices and in some states, diesel is even higher.

Srivastava said there is no economic logic now for diesel cars to be bought. In BS VI vehicles, the differential is Rs 1.25-2 lakh, meaning that diesel cars are more expensive.

Srivastava said that with a similar running cost why would consumers want to pay extra. In higher segment for SUVs, some consumers still prefer diesel vehicles but in small cars and sedans there is no no economic logic, he said.

Srivastava said the new fuel option that is gaining traction is CNG as the running cost is low compared to petrol and diesel at only Rs 1.5 per km. Even last year, CNG gained 6-7 market share and in some of the models, the CNG penetration is as high as 70 per cent.

The government policy to boost the network is also a positive as the outlets at 2100 in the country are expected to go up to 3000-3500 this year.

On the demand dynamics, Srivastava said June was a good representative month after a long gap. The enquiries, bookings are at 80-85 per cent of pre-Covid levels. “It’s a good comeback”, he said but added that part of this is also large pent up demand from the previous months.

Maruti has opened 2800 of its showrooms. On the supply side, industry is at 50 per cent of pre-Covid levels.

On the emerging consumer trends, Srivastava said consumers are shifting the choice downwards due to income loss and uncertainty in jobs and business loss. This is being reflected in bookings with a higher percentage of bookings towards smaller cars. This share was 55 per cent earlier but now it is higher at about 65 per cent.

He added that during times of stress, people tend to shift towards the established brands and are less experimental.

Also, the demand for pre-owned cars is increasing, the only issue there is that supply is less as people are holding on to their vehicles for longer time and they are not being sold in used cars.

Srivastava said another trend is that consumers are apprehensive of public transport and want to have their own vehicles.

On financing of cars, Srivastava said 80 per cent of retail sale is through financing. The post Covid liquidity of banks is good thanks to government measures. However, some of the banks are little more cautious in lending and are reviewing credit worthy of business and individuals as income levels will be impacted.

Maruti has rolled out financing arrangements with more flexibility on tenure, EMIs and cash down requirements to help consumers.

On the future triggers for demand, Srivastava said the current spike in demand has an element of pent up demand and the long term demand will be linked to fundamentals of economy and how the Covid situation evolves.

There could be an upside if the vaccine comes earlier and a downside, if the number of cases goes up. Srivastava said there is uncertainty and demand situation is difficult to predict.

He said there is revival of rural demand with a good crop and encouraging monsoons. In addition, the Covid effect on rural areas is much less while it is more in the larger cities.

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Business

Bajaj Finance’s AUM under moratorium falls to 15.5% in June

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Bajaj Auto.

Assets under management (AUM) of Bajaj Finance under moratorium has reduced from 27 per cent as of April 30 to 15.5 per cent as of June 30.

In a regulatory filing, the company further said that it may consider additional accelerated provisioning for COVID-19 in the first quarter of FY 2020-21 to further strengthen its balance sheet.

Its total AUM stood at around Rs 1.38 lakh crore as of June 30, 2020 as compared to Rs 1.28 lakh crore as of June 30, 2019.

“The company continues to remain well capitalized with capital adequacy ratio (CRAR) of approximately 26.4 per cent as of 30 June, 2020,” it said.

Its consolidated liquidity surplus was around Rs 17,600 crore as of June-end. “The company’s liquidity position remains very strong,” the filing said.

Shares of Bajaj Finance surged on Tuesday. At 12.37 p.m., they were trading on the BSE at Rs 3,230.15, higher by Rs 121.10 or 3.90 per cent from its previous close.

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Business

HDFC Bank cuts interest rates on loans by 20 bps

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HDFC-Bank

The HDFC Bank has reduced the marginal cost of funds-based lending rates (MCLR) on loans across tenors by 20 basis points with immediate effect.

Following the reduction, MCLRs of the bank will range from 7.10 per cent to 7.65 per cent.

The bank’s overnight MCLR now stands reduced to 7.10 per cent and its one-month MCLR is 7.15 per cent. One-year MCLR will now be 7.45 per cent, while three-year MCLR stands at 7.65 per cent.

Banks review MCLR every month. Last month the HDFC Bank had reduced MCLR across tenors by 5 bps.

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