Vodafone Idea shares jump 10% as Kumar Mangalam Birla returns to board

Aditya Birla Group (ABG) chairman Kumar Mangalam Birla rejoined the board of Vodafone Idea (Vi) after 20 months, which the market welcomed by sending its shares up 10%. The move is likely to boost investors’ confidence in the cash-strapped telecom operator, which is battling with losses and piling debts as well as regulatory dues.

Cheering the news, the shares of Vi opened higher at ₹6.15 against the previous closing price of ₹6.06 on the BSE. In the first two hours of trade so far, the telecom stock rose 9.7% to hit a high of ₹6.65, while the market capitalisation increased to ₹31,739 crore. On the volume front, there was surge in buying as 326 lakh shares changed hands over the counter compared with two-week average volume of 168.65 lakh stocks.

The stock has been reeling under selling pressure amid liquidity concerns, with share price falling 34% in a year, 25% in six-months, and 19% in year-to-date (YTD) basis. In the last one month, the stock has gained 2%, while it climbed over 7% in a week. The telco hit a 52-week high of ₹10.23 on May 31, 2022, and 52-week low of ₹5.7 on March 31, 2023.

In a regulatory filing, Vi said that KM Birla has returned to the board of the company as an additional director (non-executive and non-independent) with effect from April 20, 2023. Birla, who took over as non-executive chairman and director of the company in August 2018, had resigned in August 2021 after he offered to hand over his stake in Vi to the government in exchange for a bailout package in light of the telco's "looming crisis."

“It is hereby informed that based on recommendation of nomination and remuneration committee, the board of directors of the company has, at its meeting held today, appointed Kumar Mangalam Birla, as an additional director (non-executive and non-independent) with effect from 20 April 2023,” Vi said in a BSE filing on Thursday.

The move is being seen as Aditya Birla Group’s growing faith in the debt-laden company, which is struggling to secure fresh investments to roll out 5G services. The country’s third largest telecom operator is experiencing difficulties in securing funding for investing in 5G equipment and infrastructure, leading to a sharp drop in its stock prices in recent times. Vi’s inability to raise funds has put it in a precarious financial situation, which could lead to a potential duopoly between Bharti Airtel and Reliance Jio, says GlobalData, a leading data and analytics company, in a recent report.

In February this year, the central government allowed Vodafone Idea to convert its Adjusted Gross Revenue (AGR) dues, the usage and licensing fee that telecom operators are charged by the Department of Telecommunications (DoT), worth ₹16,000 crore into equity shares, which made the government the largest stakeholder in the company. The move came after the government received assurance from the Aditya Birla Group to bring in necessary funds.

As part of the debt-equity conversion plan, the company issued 1,613.18 crore equity shares at an issue price of ₹10 each to the government. As a result, the government became the largest shareholder in the company with around 33% stake.

Vi is severely in the shortage of capital to make vendor payments and the 5G rollout. About a year back, the board of VIL opted to convert the interest on its dues into equity as part of the telecom relief package. The company wanted to raise ₹20,000 crore via a mix of debt and equity, for its capital expenditure, 5G rollout and vendor payments. The promoters-- Aditya Birla Group and Vodafone Plc-- have already infused about ₹5,000 crore. Fundraising remains critical for the company’s competitiveness as the telecom operator has accumulated losses to the tune of ₹1.6 lakh crore in the last four financial years.

The net debt (excluding lease liabilities) stood at ₹2.2 lakh crore as of September 30, 2022, comprising deferred spectrum payment obligations of ₹1.37 lakh crore, including ₹17,260 crore towards spectrum acquired in the recent spectrum auction and AGR liability of ₹68,590 crore that are due to the government, and debt from banks and financial institutions of ₹15,080 crore.