Is the Vi scene being set for an Adani takeover?

The industry is now heavily speculating if the distress situation that Voda Idea is finding itself in, is heading toward a takeover by the Adani group. After the recent takeover of NDTV by Gautam Adani, the speculation has once again come to the fore, as neither the stakeholders, nor the govt, nor the banks, nor the vendors are prepared to stick their neck out for the telco.

On January 9, in a deep-green market, the share price of Vodafone Idea tanked 5.7% to a new 52-week low of Rs 7.35 and delivered a negative return of 47.47% in the last one year. The company is also trading at a negative book value which is rarely seen. Idea recently made a double bottom formation but also broke its low last month. The consistent plunge in the share price might throw the stock to Rs 5.5 by the end of FY23, hence instead of buying this dip, investors would consider exiting on any bounce.

In fact, the market capitalization of the stock has reduced to Rs 25,052 crores, making it the 189th largest company on the NSE. If this rank falls below 250, then it will officially become a small-cap company.

As of the end of October 2022, India had 1.14 billion registered mobile connections, of which more than 1 billion were classified as active. Reliance Jio leads the pack with 421.4 million connections and a market share of 36.85%. Bharti Airtel is a close second with 365 million connections and a market share of 31.92%. And in third place sat Vodafone Idea with 245.6 million connections and a 21.48% market share. This by itself is not a bad situation.

However, Vodafone Idea has been in trouble for years and it’s getting worse. In October, whilst 98.1% of Bharti Airtel’s and 92.58% of Reliance Jio’s connections were active, just 86.2% of Vodafone Idea’s mobile lines were in use. And Vodafone Idea lost 3.5 million connections after having lost 4 million the month before, while Reliance Jio and Bharti Airtel respectively added 1.4 million and 805,000 new customers.

The subscribers are churning away in ever-increasing number, leaving the telco in an even weaker position. The unpaid bills also mean the carrier is finding it impossible to buy 5G equipment as it tries, and fails, to keep pace with its rivals. On the other hand, Bharti Airtel and Reliance Jio are targeting 100-150 million mobile phone users by March 2024 for conversion to 5G as they expand their coverage and develop more consumer use cases.

Vodafone’s Indian assets are under huge pressure. The telco reported a net debt of Rs 2.2 lakh crore as of end-September 2022. Last year, the telco was confident that it had secured a debt-for-equity exchange deal with the Indian government that would relieve it of Rs 16,100 crore in interest payments that were due on mobile spectrum licences under the country’s adjusted gross revenue (AGR) rules. This would have made the operator more attractive to potential new investors (or even old ones) but Vodafone Idea still owes huge sums to its vendors. One company that is owed dues by Vi, is Indus Towers. Indus has already threatened to cut off Vi’s access to its mobile towers if its Rs 7000 crore debt is not cleared. That would cause significant disruption for its subscribers.

As the telco seeks emergency loans, the banks have expressed reluctance. The lenders are waiting for either a capital increase by its main shareholders – UK-based Vodafone Group and local investor Aditya Birla Group – or a debt-to-equity conversion by the government, that would raise the govt stake in the telco to beyond 30% before granting the operator any funding.

A recently conducted feasibility study suggests that apart from the dire need of funds, the business might need a radical restructuring in order to survive. Also, the telco has a mandate to rollout 5G services by August 2023, and non-compliance will mean a financial penalty, even the assigned spectrum could be taken back. The terms and conditions at the time the spectrum is assigned includes 5G network roll-out obligations, within the first year from spectrum allotment, anywhere in each of the three metros and at least one city each of India’s 22 telecom circles

The countdown has already begun, and 2023 will be the year when Vi’s fate will be finally sealed.

CT Bureau