This followed a letter by Birla to the government, in which he asked for help and even proposed to forego his stake in case any government or private entity wanted to take over the business, in lieu of helping survive the company.
The stock price hit a low of Rs 4.55 per share on Thursday compared with Rs 8.50 level just three days back. Volumes shot up suddenly. Now, scared investors are asking if the share price can hit zero?
Analysts say theoretically it is not possible, but there are some scenarios in which investors may be left with nothing in their hand. The answer largely lies in what form the company will survive, if it does.
Most opinions on Dalal Street say the government cannot afford to let Vodafone Idea die. The company employs a large number of people, who depend on it to earn their living. Unemployment is a touchy subject for the government. Moreover, if Vodafone goes belly up, it will result in virtual duopoly in the telecom market, pushing tariffs up significantly.
“I will compare tariffs with onion prices. Whenever onion prices go up, it creates political issues. Similarly, mobile telephone has become a necessity. So you can’t afford to have tariffs rise sharply,” said Ambareesh Baliga, an independent market analyst.
Another major issue that can stem from the collapse of Vodafone Idea is that the banking system will be left with a massive bad loan account. Vodafone Idea’s biggest lenders include , and Yes Bank. The total debt (including interest accrued but not due and AGR liability) of the company stands at Rs 1,86,705.5 crore.
“Either the government gives sops right now or pays via recapitalisations to banks. Moreover, if the company collapses, you will not even get your AGR dues that you are fighting for right now,” Baliga said.
In fact, some reports say Vodafone Plc, the UK-based parent of the company, has offered its stake to BSNL or any other financial institutions for free provided they take over the wireless telephony company. Vodafone Plc has clarified that it won't infuse anymore liquidity in its Indian arm, echoing Birla’s stand.
Ajay Bodke, an independent market analyst, suggested the government could do the same with Vodafone Idea what the US government did with Citibank during the global financial crisis. In 2008, the US rescued Citigroup Inc agreeing to shoulder most losses of about $306 billion of the bank’s risky assets, and inject new capital in exchange of equity. The government eventually sold its stake after the bank was able to stand on its own legs.
However, this will mean Vodafone Idea shares will be zero.
“It appears that Vodafone Idea has been abandoned by both its promoters. The hands of governments are also tied after apex court order. Hence, few options are left now that avoid liquidation. Nationalisation is one, which would entail writing off the entire equity of current shareholders. Moreover, all the dues to the government and banks can be converted into equity,” said Bodke, who was earlier managing PMS funds of Prabhudas Lilladher.
He said the government can also raise the floor price of telecom tariffs and ask the current managers to continue. As the company is making money at the Ebitda level, after all dues are cleared, the company will become profitable even with bloated equity.
The net worth of Vodafone Idea is negative Rs 38,228 crore, as of March 31, 2021.
"A powerful duopoly in telecom is not desirable. Therefore, the government should explore all options to make the hugely crucial telecom sector a three-player industry," said VK Vijayakumar, Chief Investment Strategist at
."Birla's offer to give up his stake to give a potential lease of life to Voda Idea and its customers, which should be welcomed and all options explored. An important learning from this sad episode is that governments' short-sighted policies to maximise revenues can wreck havoc on a crucial industry," he said.
So, with things so uncertain today, and the chances of survival a little higher given the risks Vodafone Idea’s collapse entails, should you buy the stock?
“It is a binary event. If it survives, it could be a multibagger, rising 2 to 3 times. And if it doesn’t survive then it is a writeoff. So only those who can take very high risks should buy Vodafone Idea now. Otherwise don’t,” said Baliga.
Crisis deepens: Can Vodafone Idea share price reach zero? - Economic Times
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