Vodafone Idea stock jumps 35% on report of possible stake sale to Google

Analysts, however, say a 5 per cent sale will not help much given the cash burn and rising debt

The Vodafone Idea stock gained as much as 35 per cent in intra-day trade on Friday, following reports that Google is in talks to pick up a 5 per cent stake. The stock ended with gains of 12.7 per cent, even as the management indicated “there is no such proposal as reported by the media that is being considered by the Board”.

Reports of an investment come amid a flurry of fundraising activity by peers Reliance Jio (Jio Platforms) and Bharti Airtel. Though the deal is yet to be finalised, the news comes as a huge respite, says Credit Suisse. Analysts highlight the valuation difference between Jio, Airtel, and Vodafone Idea.

“Jio Platforms has now an equity valuation of Rs 4.9 trillion, while Airtel’s market capitalisation is at Rs 3.01 trillion. Vodafone Idea, in comparison, is valued at just under Rs 19,000 crore,” said a telecom analyst at a domestic brokerage.

The reason for the valuation differential and lack of enthusiasm in the Street, to the 5 per cent stake sale report, is the debt and cash burn at the firm. As of December, it had gross debt of Rs 1.15 trillion (net debt of Rs 1.03 trillion), with 76 per cent of it being deferred spectrum liabilities.

After posting losses of Rs 14,000 crore in FY19, the firm’s reported loss for 9MFY20 stood at over Rs 61,000 crore (including exceptional charge related to AGR liability, and depreciation of Rs 32,000 crore). Given the stress at the operating level and expectation of more losses, analysts say it needs more money than the 5 per cent stake sale, which will fetch under Rs 1,000 crore. “With cash burn of Rs 4,000-6,000 crore a quarter, it would require Rs 25,000 crore annually to sustain,” says an analyst.