Shareholders of Vodafone Idea seem to be a worried lot these days. Crores of shares have exchanged hands in the last few sessions prompting worries.
The company has been trending in social media for all the wrong reasons ever since former non-executive Chairman Kumar Mangalam Birla's letter of offering his stake for free caught attention.
Investors were anyways scrutinizing their options since the Supreme Court delivered a decision in the AGR dispute.
51 crore shares were off-loaded just on Thursday taking the stock price to Rs 5.94 apiece according to data made available by the Bombay Stock Exchange. A similar volume of shares being exchanged was witnessed on Wednesday.
The situation has prompted memes on social media and the comparison with wealth destroyers such as DHFL, Reliance Communications and even Yes Bank. Analysts and rating agencies have been tight-lipped about the future of Vodafone Idea. Of course, there is a section of investors who believe that this stock can walk back from the dead.
Such analysts think Vodafone Idea is a "too big to fail" enterprise and the prospect of an NPA as large as Rs 1.6 lakh crores would hit the banking system terribly. Such analysts have reposed hope and have asked shareholders to stay in this stock. However, readers are advised to take a stock of their risks prior to deciding the outcome.
Goldman Sachs in an analyst report July 29 had initiated a 'Sell' rating forecasting the price to drop to Rs 3 per share. The report also predicts repayment issues for Vodafone Idea in Dec 2021
Yes Securities in a report dated 5th July had recommended a reduction rating for this stock citing revenues declining by 11.8 percent in the last quarter report. They had forecast a target price of Rs 8 per share.
Piyush Pandey Lead Analyst with Yes Securities in a note hints about the prospects of a takeover. He said, "It has become very difficult for Vodafone Idea to service its huge net debt at 10x Net Debt/ EBITDA, in this pricing environment where tariffs are much below sustainable level."
"Promoters have refused to infuse additional equity into the company. Now, with KM Birla stepping down from Chairmanship and the current state of company’s financials (loss making), it would be difficult to raise money from other institutional investors. The options are quite limited for the company and takeover by the government is likely scenario to keep it as going concern entity”
The likelihood of Vodafone Idea shares returning to life is rare. Also, the government's reluctance to help Vodafone Idea is likely to push this stock to a debt tribunal. At such commissions the first preference has been usually given to lenders and banks. There is no word on whether shareholders would get back their investments in this stock. Hence, holding the shares makes so sense.
Vodafone Idea has been a concern since 2019. The latest statement from KM Birla does make it serious but Vodafone CEO Nick Read had already predicted a gloomy outlook in 2019.
Birla has been reported as having written, "It is with a sense of duty towards 27 crore Indians connected by VIL, I am more than willing to hand over my stake in the company to any entity-public sector/government/domestic financial entity or any other that the government may consider worthy of keeping the company as a going concern..."
Nick Read in 2019 had asked for a level-playing field against Reliance Jio. "either they [government] should take their boots off the neck of the industry and allow it to better compete with Mukesh Ambani on 5G, or Vodafone Idea is destined for a potentially chaotic final act with potential repercussions for India's international standing."