Teji Mandi Explains: All eyes on Vodafone Idea (Vi) as govt lends a hand

Vodafone Idea (Vi) in the last few years has literally hit rock bottom. The company had thousands of crores worth of debt and the intensifying competition from Reliance Jio and Bharti Airtel further eroded all its funds. The company was about to exit the business but the government stepped in and lent a supporting hand. Here’s a quick look at what’s happening!

What Happened?

Kumar Mangalam Birla (sizeable stake in Vi) and UK-based Vodafone were contemplating giving out their stake and exiting the business for obvious reasons. The debt pile of Vi was horrifying, and cut-throat competition from its peers was enough for the telco to go downhill. Then in September 2021, the government offered the company a lifeline. They gave the telco time to pay up their dues. The government offered Vi to convert all their AGR dues and spectrum auction interest into equity. Now the government holds 35.8% equity in Vi and is the largest shareholder in the company. This means more investment in Vi which can help them to raise their product standards and ARPU (average revenue per user).

Despite being the largest shareholder, the government wants no role in Vi’s operations and no seat on the board of directors. The promoters can continue to manage and control the company as it is. It’s a win-win situation because the government can later gain from Vi’s potential growth in the future.

Should This Concern You?

Not really, because the shares of Vi rose to 13% on January 12. Media experts believe that the shares could further rally since the government clarified that it will not interfere in the company matters. However, Jio and Airtel still pose a big competition to Vi, considering their market shares are much higher. Also, the debt is still much higher, and they are not investing like their peers, which is resulting in a loss of subscribers. The government’s allowance of 100% FDI is a silver lining for Vi. Maybe a foreign investor will eventually pick up some stake, and the conditions of this telco will improve. Right now, the stakes are higher, but hope is still on.

What Lies Ahead?

The government’s decision was solely to rescue the telecom market from only two players (Jio and Airtel). Also, it didn’t want the company to go down without paying all the dues, which would’ve been a loss to the government. To avoid loss and market concentration, the step was taken. It is the last resort for Vi. If more telecom players join the market and Vi is still neck-deep in problems then it could be all over for the company.

Published on: Monday, January 17, 2022, 04:22 PM IST