Vodafone Idea shares gain 2% as Kumar Mangalam Birla buys additional stake

Shares of Vodafone Idea (Vi) rose nearly 2% in opening trade on Wednesday after its promoter, Kumar Mangalam Birla, recently purchased additional stocks in the debt-laden telecom company. Kumar Mangalam Birla, the chairman of the Aditya Birla Group, picked up an additional 1.86 crore shares in the country’s third largest telecom operator on September 6, whereas investment firm Pilani Investment also brought 30 lakh shares in the company on the same date, as per the exchange data.

Cheering the news, Vodafone Idea shares gained as much as 1.6% to ₹13.75 against the previous closing price of ₹13.53 on the BSE. The stock witnessed strong volume as nearly 1 crore shares changed hands over the counter and the market capitalisation rose to ₹92,520 crore. The telecom stock touched its 52-week high of ₹19.15 on June 28, 2024, and a 52-week low of ₹10.31 on September 13, 2023.

In the recent past, Vi’s promoters have gradually trimmed their stake in the merged entity of Vodafone India and Idea Cellular, from 48.91% as of March 30, 2024, to 37.17% at the end of June quarter. Aditya Birla Group holds 14.99% of the company's equity, while Vodafone Group Plc owns 23.2% stake in the cash-strapped firm. Among others, the government of India has 23.2% shareholding in the company, while foreign entities Nokia and Ericsson own 1.5% and 0.9%, respectively.

Last week, foreign brokerage firm Goldman Sachs retained ‘Sell’ call on the telecom stock, saying that the path to free cash flow (FCF) break-even and market share recovery is unclear. The brokerage expects a potential downside of 83% on the stock with a target price of ₹2.5 apiece amid concerns that recent capital raise by the company is unlikely to be sufficient enough to stop its market share erosion. Vi recently raised ₹20,100 crore ($2.4 bn) in equity (through a combination of a follow-on public offer and capital infusion from promoters; excluding vendors). In addition, the company says it intends to raise another ₹25,000 crore in debt ($3 bn), though it didn’t specify a timeline.

The brokerage says Vi shares currently trade at an almost 100% premium to Bharti and Jio, and it sees limited reason for this premium to exist, citing weaker growth, margin returns and balance sheet profile vs peers.

Goldman predicts the telco to lose another 300 bps in market share over the next 3-4 years, amid expectation of peers spending at least 50% higher capex as compared to the cash-strapped company. Vi, India’s third-largest telco with 17% revenue market share, has consistently underperformed peers- Bharti Airtel and Reliance Jio, losing about 500 basis points of revenue market share over the last 3 years.

Vodafone Idea, a joint venture between Vodafone and the Aditya Birla Group, has gross debt of ₹2.1 lakh crore ($26 billion), of which only about $600 mn is owed to banks and financial institutions, with the remainder payable to the government of India towards spectrum ($17.2 bn) and AGR (adjusted gross revenue) dues ($8.5 bn). These government dues are currently under moratorium until October ‘25, after which the telecom operator will have substantial payment obligations. The company’s recent filings show that its repayment obligation would be $3.3 bn in FY26, rising to $5 bn in FY27 (excluding dues not under moratorium).

Taking into account repayments such as interest expense on new debt, minimum spectrum dues, and other payables, the brokerage estimates Vodafone Idea to have a maximum capex potential of ₹62,600 crore ($7.5 bn) by Mar ’25.

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