KM Birla exits Vi

is Vi on its last call?

the beleaguered telecom joint venture between the Vodafone Group and Aditya Birla Group (ABG) is in the news again. last week saw the resignation of its chairman, ABG supremo Kumar Mangalam Birla, and his offer to handover ABG’s 27.66% stake in the company to the state or any entity it deems fit. meanwhile, its stock sank over 30%. 

problems galore

the offer from Birla comes as a result of the telco being unable to grapple with its massive debt. Vi’s debt is around ₹1.8 lakh crore. it owes nearly ₹60,000 crore to the department of telecommunications (DoT) and ₹23,000 crore to banks and financial institutions. its biggest burden, however, is the  ₹96,270 crore owed as deferred spectrum liabilities

Vi’s finding it difficult to make the most of the spectrum allocated to it as well. Airtel and Jio have cornered large swathes of the market, and now constitute a virtual duopoly over India’s telecom sector. Vi still holds a market share of over 20%, but it’s a number that’s rapidly dropping. it has lost about 13% market share since the launch of Jio in 2016. worse still, both the top players are going from strength to strength, with Airtel’s resurgent run helping it catch up to Jio. this has seen the Airtel stock rise to near-record levels.

if all that wasn’t enough, Vi is in a legal tussle with the Indian government that is seeking  ₹22,100 crore in back taxes and penalties.

faint ray of hope

for all of this negativity, there might still be some investment interest in Vi. the government has approved its proposal to raise upto ₹15,000 crore via FDI, and upto a combined ₹25,000 crore across all routes. there may also be a government relief package for the telecom sector in the works. this could see the debt of Vi’s DoT dues reduced by a fair amount.

another important measure for Vi to survive is maximising its existent customer base. for this it has to raise tariffs. fortunately for it, Jio and Airtel now seem in favour of the idea, with the latter already hiking the price of its base plan.

additionally, following the outcome of the Indian government’s demand for back taxes from Cairn, Vi might be spared the burden of that too. so there’s still a ray of hope, no matter how faint.