Vodafone Idea slips 16% as Kumar Mangalam Birla steps down

Shares of Vodafone Idea tanked around 16% in Thursday’s morning trade after Kumar Mangalam Birla on Wednesday stepped down as the chairman of the company. The scrip traded 15.75% down at Rs 5.08 at around 10.30 am (IST), while the benchmark BSE Sensex traded 0.13% lower at 54,297 at around the same time.

In a regulatory filing, Vodafone Idea said that the board of directors have accepted the request of Kumar Mangalam Birla to step down as non-executive director and non-executive chairman of the board with effect from close of business hours on August 4.

Consequently, the board has unanimously elected Himanshu Kapania, currently a non-executive director, as the non-executive chairman. Kapania, a nominee of the Aditya Birla Group, is a telecom industry veteran with 25 years of experience. This includes significant board experience in telecom companies globally. Kapania has also served on the Global GSMA Board for two years and was also the chairman of the Cellular Operators Association of India (COAI) for two years.

On the other hand, Vodafone Idea did not givegive any reason for Birla’s decision.

The Supreme Court, last month, had rejected petitions by telecom companies including Vodafone Idea and Bharti Airtel, for rectification of alleged errors in calculation of adjusted gross revenue (AGR) related dues payable by them.

The company lawyers had told the apex court that the firm is making a loss and can “go under” if the rectification is not allowed.

According to official data, Vodafone Idea had an AGR liability of Rs 58,254 crore, out of which it has paid Rs 7,854.37 crore while Rs 50,399.63 crore is outstanding.

The move comes just weeks after Birla offered to hand over stake in VIL to the government, in a desperate attempt to keep the company afloat.

Analyst take:

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said that the Vodafone Idea story is unfolding with potentially far-reaching consequences for Indian business. It is a fact that the government and the regulatory body didn’t act in time to rescue the company. The Supreme Court verdict on AGR dues made the situation precarious for the company which is now heading for default on loans. If this happens it will impact a few banks too since the debt to banks stands above Rs 23000 crore.

“A powerful duopoly in telecom is not desirable. Therefore, the govt should explore all options to make the hugely crucial telecom sector a three-player industry. Kumaramangalam Birla’s offer to give up his stake to give a potential lease of life to Vodafone Idea and its customers should be welcomed and all options explored. The stakes are huge.
In an industry dominated by large players who can destroy competition, it is also important to have a floor price above cost for services. An important learning from this sad episode is that governments’ short-sighted policies to maximise revenues can wreak havoc on a crucial industry,” he said.