Voda Idea losses spill over to other AB Birla group firms; m-cap down 6.2%

The continued losses at Vodafone Idea are spilling over into other AB Birla group firms, led by Chairman Kumar Mangalam Birla. The combined m-cap of the AB Birla group firms was down 6.2 per cent on Monday, led by losses at Vodafone Idea. In all, group firms lost nearly Rs 18,000 crore m-cap on Monday. The telecom major has lost 44.3 per cent of its m-cap in July, wiping out most of the gains it made after it raised Rs 25,000 crore by way of a rights issue in May this year.

Vodafone Idea now has a m-cap of Rs 19,454 crore against Rs 39.942 crore at end of last month.

The biggest surprise for the analysts was, however, a sharp 9 per cent fall in Grasim Industries stock price, the flagship company and the main operating and holding company for the AB group. It was the worst fall in Grasim share price in the last two years, raising fears about a spill-over effect from Vodafone Idea's poor performance. Grasim is the single largest promoter shareholder of Vodafone Idea with 11.55 per cent stake in the company at the end of June 30. In all, Birla's owned 27.18 per cent stake in the telecom joint venture.

Grasim also owns a majority stake in UltraTech Cement, Aditya Birla Capital and Aditya Birla Money. Besides, the company is a minority shareholder in Hindalco Industries and Aditya Birla Fashion, other two key AB Birla group companies.

Analysts expect a reduction in Grasim's financial flexibility if it is forced to make an incremental equity investment in Vodafone Idea to compensate for its losses as it did in the recent past. The mobile operator reported a net loss of Rs 4,873.9 crore during April-June 2019 quarter, its tenth loss in the last 11-quarters.

The continued losses in the mobile venture has led to a large erosion in the market value of Grasim equity investment in Vodafone Idea. According to Capitaline database, Grasim's total equity investment worth Rs 7,311 crore (at book-value) in the telecom venture will now only fetch a value Rs 716 crore based on Vodafone Idea current share price.