Vodafone Idea shares surge more than 30% after Google reportedly considers a stake in the debt-laden telco

Kumar Mangalam Birla, Chairman, Aditya Birla Group and Idea Cellular Limited, and Mr. Vittorio Colao, CEO, Vodafone Group Plc at the Idea Vodafone merger PC in Mumbai on MondayBCCL
  • According to the report, Google is looking to acquire a stake of 5% in Vodafone Idea.
  • The news comes after Facebook picked up a 9.99% stake in leading telecom operator Reliance Jio for $5.7 billion.
  • Google’s interest in Vodafone Idea could be an after-thought, after it reportedly missed out on the Jio deal to Facebook.
Shares of Vodafone Idea have surged by more than 30% on May 29 after reports suggested Google is exploring a stake purchase in struggling telecom operator. The move comes after Facebook picked up a 9.99% stake in Reliance Jio, India’s leading telecom operator.

According to a report by Financial Times, Google could pick up a 5% stake in Vodafone Idea. The report also adds that the talks are still in a “very early stage”, so the details of the deal could change.

The report further adds that Google is also in talks to acquire a stake in Reliance Jio, and that the talks are still ongoing. However, since Facebook has already joined Jio, it might make sense for Google to pick up a stake in Vodafone Idea, which is the second largest telco in the country by number of subscribers.

Advertisement



Note: Vodafone Idea's share price on 29-05-2020 is taken at 12:10 pm.

A deal with Vodafone Idea could also come at a comparatively discounted price. Even though its share price has increased by 84% since March, it is relatively cheaper when compared to rival telecom operators like Airtel.

Advertisement

CompanyMarket capitalisation (in crore)
Reliance Jio₹4,89,075
Airtel₹3,07,000
Vodafone Idea₹16,665

Note: Reliance Jio's valuation is based on the latest investment made by KKR. Airtel and Vodafone Idea's valuations are based on the closing price as on May 28, 2020.

Vodafone Idea and its timeline of woes

Since the entry of Jio, Vodafone Idea has posted cumulative losses of ₹77,000 crore, with ₹50,922 crore coming in September 2019 alone.

Advertisement

It was hit by a demand of ₹53,000 crore by the Supreme Court for recovery of adjusted gross revenue dues.

In November 2019, the telco’s UK parent Vodafone Plc wrote down the value of its Indian entity to nil. It also lost 36 million subscribers in the same month. According to the latest numbers released by the Telecom Regulatory Authority of India (TRAI), Vodafone Idea has 336 million subscribers, while Jio is said to have 387 million subscribers.


The Indian telecom sector is too lucrative for the big tech companies to ignore

Advertisement

The Indian telecom sector presents a good investment opportunity for big tech companies to expand their presence in the country. Although Vodafone Idea’s status is critical right now, the recent price hikes by all the three major telecom companies gives it a chance to survive in the market.

Further, the Jio-Facebook deal has opened up the Indian telecom sector for investments. Since the deal with Zuckerberg’s company, Jio has found buyers in KKR, General Atlantic, Silver Lake and Vista Equity Partners.

Airtel, the third-biggest telco, is also looking to raise $1 billion by selling a 2.75% stake to Fidelity, Segantii Capital, Norges Bank and others.

Advertisement

Jio changed the face of Indian telecom sector

India’s telecom sector has seen major upheaval since the entry of Mukesh Ambani-led Reliance Jio. After Jio’s entry, the Indian telecom sector has seen minor players like Tata Docomo, Aircel, Reliance Communications, Telenor either wind up or sell their business to Airtel.

Amidst all this, Vodafone and Idea, which were two separate operators, decided to merge in 2018 to take on Reliance Jio. However, since then, the merged entity Vodafone Idea has been losing millions of customers due to multiple issues, including business uncertainty and a fall in its quality of service.

Jio was the major beneficiary of this, going on to become the largest telecom operator in India both by revenue and number of subscribers.
Advertisement


Update: Vodafone Idea in a statement to NSE has said, "As part of corporate strategy, the company constantly evaluates various opportunities for enhancing the stakeholders’ value. As and when such proposals are considered by the Board of Directors of the Company warranting disclosures, the Company shall comply with the disclosure obligations under the SEBI Regulations. Currently, there is no proposal as reported by the media that is being considered at the Board."

SEE ALSO:

Airtel’s Africa unit is now a nearly-billion dollar business where every user pays 40% more than the one in India

A new research report says Vodafone Idea has to increase tariff by 39% to survive – and that will be a bounty for Reliance Jio and Airtel

India is changing its mobile habits and that can help Airtel and Vodafone