Shares of Vodafone Idea cracked almost 8 percent in intraday trade on BSE on March 4 even as parent firms of the company Vodafone Group Plc and Aditya Birla Group have infused ₹4,500 crore in the troubled company.
Besides, the company’s board on March 3 approved the sale of 3.38 billion shares at ₹13.3 apiece to Vodafone Group and Aditya Birla Group and cleared additional fundraising of ₹10,000 crore through equity and debt from outside investors.
Vodafone Group owns 44.39 percent of the telco, while Aditya Birla Group owns 27.66 percent. With the fresh fund infusion, promoters' stake in the company will rise but it will depend on how much the government will own in the company as Vodafone Idea had availed the option of converting the interest dues of ₹16,000 crore into equity, making the government its major shareholder with a 36 percent stake in the company.
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The company has been under acute financial pain in the last few years. Its gross debt, excluding lease liabilities but including interest, increased to ₹1.99 lakh crore for the quarter ended December 31, 2021.
The fresh fundraising is grossly inadequate to address the company's financial woes so analysts are shying away from giving a 'buy' call on the stock.
An average of 18 analysts polled by MintGenie have a 'sell' rating on the stock.
"The fundraising announcement by Vodafone should provide some respite to the company’s investors. The infusion of funds will help the company build on its technology and network capacities further. Although this is a positive sign for the firm, we do not advise investors to buy the stock at current levels as this infusion might not be adequate for revival," said Likhita Chepa, Senior Analyst at CapitalVia Global Research.
Vodafone Idea had NCD repayments of ₹6,400 crore due between December 2021 and February 2022 which has mostly been met. Its next repayment is due only in September 2023. So in the short term, it can focus on expanding its market loss which remains a key challenge.
"The company has an annualized EBITDA of ₹6500 crore (Q3FY22), which is sufficient to undergo maintenance capex," brokerage firm Motilal Oswal pointed out. "However, the same remains 25 percent lower than that for Bharti/Reliance Jio, despite their higher scale and capacity. The further arrest of market share loss, which continued until Q3FY22, remains key," Motilal Oswal said.
Motilal Oswal has a 'neutral' view on the stock with a target price of ₹9.8 which is nearly 12 percent below the stock's closing price of ₹11.08 on March 3.