Vodafone India bulls get ahead of themselves

Indus Towers

21/06/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own. Refiles to remove unnecessary tag in the
headline.)
    By Shritama Bose
       MUMBAI, June 21 (Reuters Breakingviews) - New Delhi’s
bailout last year of Vodafone Idea  VODA.NS  is starting to pay
off. This week its major shareholder, the UK's Vodafone  VOD.L ,
bagged just shy of $2 billion selling most of its 21% stake in
communications infrastructure provider Indus Towers  INUS.NS ,
which counts India’s third-largest telecom operator as a major
tenant. That comes two months after Vodafone Idea managed to
raise more than $2 billion in the country’s largest-ever
secondary share sale. But it remains so weighed down by three
major problems that the almost threefold increase in its stock
price since the government stepped in looks overdone.
    First, Vodafone Idea is losing customers. At 213 million,
its user base is 48% below its peak of 408 million at the time
Vodafone India merged with Idea Cellular in 2018. The pace of
erosion did at least slow in the financial year to the end of
March. But it’s hard to imagine the trend reversing until the
company can offer the same 5G service already offered by larger
rivals Reliance Industries  RELI.NS  and Bharti Airtel
 BRTI.NS ; in fact, in some areas Vodafone Idea only operates 3G
networks.
Fixing that will take time – and money. Sure, the firm run by
Akshaya Moondra has added to its coffers and may soon be able to
tap lenders for up to $4 billion-having cut its bank debt by 64%
in the 12 months to the end of March. But it still owes the
government a chunky $24 billion. Moreover, analysts expect the
company to keep losing money for the next three financial years,
per LSEG data.
On top of that, Vodafone Idea has a messy ownership structure.
Tycoon Kumar Mangalam Birla’s group is now regarded as the
effective proprietor, but holds just 8%. New Delhi’s
intervention last year gave it a third of the company, though
after April’s equity offering that has dropped to 24% and it’s
not expected to be a long-term holding. Neither is the UK’s
Vodafone. It remains the biggest shareholder with 29%, but is
unlikely to inject any more cash into the business. That means
shares in more than half of the company are likely at some point
to need to change hands.
    New Delhi's rescue has helped stop the rot. But the prospect
of Vodafone Idea suffering from some dropped calls remains
pretty high.
Follow @ShritamaBose on X
     
    CONTEXT NEWS
    Vodafone Group sold a bigger-than-planned 18% stake in
India's Indus Towers on June 19, raising $1.82 billion that the
British telecom group said it will use to reduce debt.
    The company, which owned 21.5% of Indus prior to the sale,
had initially planned to sell a 10% stake but strong investor
demand made it nearly double the sale size, Reuters reported the
same day, citing an unnamed banking source.
    In April, Vodafone Idea raised $2.15 billion through the
country’s largest ever follow-on public offer, garnering bids
worth seven times the issue size.

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(Editing by Antony Currie and Aditya Srivastav)
((For previous columns by the author, Reuters customers can
click on  BOSE/  mailto:shritama.bose@thomsonreuters.com))