Vodafone Idea tanks 12%, hits 52-week low

Shares of Vodafone Idea (VIL) tanked 12 per cent to hit a 52-week low of Rs 7.26 on the BSE in intra-day trade on Tuesday after reports suggested Kumar Mangalam Birla has told the government that he is willing to give up promoter stake in the company.

The stock of the telecom services company fell below its previous low of Rs 7.60 touched on October 19, 2020. It was trading at the lowest level since July 2020. The stock had hit a record low of Rs 2.61 in November 2019.

Birla has expressed willingness to offer his group’s 27 per cent stake in VIL to any government or domestic financial entity in order to keep the stressed telecom company alive.

The Aditya Birla Group chairman and promoter of VIL made the suggestion in a letter to Union Cabinet Secretary Rajiv Gauba on June 7. The VIL debt has more than trebled in the last four years to Rs 1.6 trillion as of the end of March 2021, from around Rs 37,000 crore in FY16. This includes deferred spectrum obligations and adjusted gross revenue (AGR) liabilities.

Analysts at ICICI Securities have ‘sell’ rating on VIL as the brokerage firm sees payment of liabilities coming soon, while fund availability remains a challenge. The efforts to raise funds have also not yielded any outcome yet.

The liabilities due for payment in the next 12 months are annual payment (includes interest) towards AGR liability of Rs 8,000 crore in March 2022 (this is assuming nil payment for Mar 2021 dues, which is yet to be clarified); bank guarantee of Rs 7,000 crore coming up for renewal (the company has to give an additional bank guarantee of Rs 1,000 crore); annual payment towards spectrum due in April 2022 of Rs 8,200 crore. The company has requested DOT for deferment of some of the payments due to cash flow crunch, the brokerage firm said in a July report.

“VIL’s weak liquidity position restricts its capability to invest in network improvement, as evident from its reducing capex intensity. The significant amount of cash required to service its debt, leaves limited upside opportunity for equity holders, despite the high operating leverage opportunity from any ARPU increase. The current low EBITDA would make it challenging to service debt without an external fund infusion. Assuming 8x EV/EBITDA, with net debt of Rs 1.19 trillion (excluding lease liability and AGR debt), it leaves limited opportunities for VIL’s equity shareholders,” analysts at Motilal Oswal Securities had said in the March quarter result update.