Amazon stake buy talk sets Voda Idea on fire

Shares of Vodafone Idea ended at the highest level in nearly 15 months today after a media report that Amazon and Verizon Communications are interested in buying stake in the company strengthened investors hopes of the company surviving.

The stock closed 26.8% higher at 12.55 rupees on the National Stock Exchange after it hit and over 52week high of 12.85 rupees.

A newspaper today reported that Amazon and Verizon have resumed talks with the company for a potential strategic investment of $4 bln that could provide a lifeline to the company, which faces estimated cash flows of 89 bln rupees per annum for the next 10 years towards meeting its adjusted gross revenue dues.

The reported talks have resumed after the Supreme Court gave telecom operators 10 years to repay the adjusted gross revenue dues with 10% paid upfront starting from next financial year.

The government has demand that Vodafone Idea pay 580 bln rupees in dues, of which the telecom operator has already paid around 78 bln rupees.

But, analysts felt that the judgement fell short of expectations and will still keep the question of Vodafone Idea’s survival up in the air. Kotak Institutional Equities believes that the odds of the company’s survival are slim without substantial tariff hikes.

The brokerage said that Vodafone Idea will have to more than double its average revenue per user by 2020-23 (Apr-Mar) to breakeven on a cash flow basis.

In the context, investors believe that Amazon and Verizon could come in as a game-changer. Amazon could leverage Vodafone Idea’s size and reach to take on Google and Facebook for a piece of one of the fastest growing Internet markets in the world.