If the deal materialises it will brighten up the telco's survival prospects
Alphabet Inc’s Google is considering acquiring a stake in Vodafone Group Plc’s struggling Indian business, the Financial Times reported, joining Facebook Inc in investing in the world’s fastest-growing mobile arena.
Google may take a stake of about 5% in Vodafone Idea, a partnership between the UK telecom carrier and the Aditya Birla Group, though the deliberations are at a very early state, the FT cited people familiar with the matter as saying.
Any deal would come weeks after Facebook paid $5.7 billion for a slice of digital assets controlled by Mukesh Ambani, Asia’s richest man. The deal was a landmark investment followed in successive days by major influxes of capital into India’s tech industry led by private equity firms.
Spokespeople from Vodafone and Vodafone Idea declined to comment.
Google itself has big ambitions for India, a country with a huge first-time internet user population that serves as a test-bed for innovations in smartphone technology.
Facebook’s alliance with Ambani’s Reliance inserted a powerful new competitor into a crowded Indian internet industry already contested by Google, Walmart Inc, Amazon.com Inc and SoftBank Group Corp-backed local outfit Paytm. But none of them have the reach of WhatsApp, the nation’s most popular communications platform.
Any investment by Google in Vodafone Idea at this stage will boost the company’s financials and its ability to survive in the market. Question marks over its survival have been there since October Last year when the Supreme Court ruling mandated that it pay a huge Rs 58,254 crore as adjusted gross revenue dues. So far the company has paid only Rs 6,854 crore and its future hangs on whether the SC allows it to pay the balance amount spread over some 20 installments. The company which has been posting losses since its merger in August 2018, suffered a big blow as a result of the SC order on AGR dues.
The company posted a net loss of Rs 6,453 crore during the October-December quarter on a revenue of Rs 11,089 crore. Though it is still to declare its January-March quarter earnings, analysts at Credit Suisse have estimated a net loss of Rs 5,816 crore for the period. They expect the company’s consolidated revenue to grow by 3.3% Q-o-Q to Rs 11,457 crore and the Ebitda by 11% Q-o-Q to Rs 3,800 crore.
They believe Vodafone Idea will be impacted by Covid-19 with less than-expected Arpu recovery following from the tariff hikes announced in December 2019. However, the subscriber market share loss for the company in the near term would be reduced on account of the lockdown. CS is estimating a 2.9% QoQ decline in subscriber base and a 6.5% QoQ growth in the Arpu. The Ebitda will benefit from the improvement in Arpu as 70-80% of the incremental revenue will flow through the Ebitda.
On May 12, Vodafone Plc, which owns majority stake in Vodafone Idea, had said that it has decided to value its Vodafone Idea shares to zero. It also said that it has a maximum exposure of 1 billion pounds (Rs 8,400 crore) to the firm. This means it has to contribute up to that much amount towards paying Vodafone Idea’s liabilities based on the terms agreed during signing the Vodafone Idea merger deal.
“Significant uncertainties exist in relation to Vodafone Idea’s ability to generate the cash flow that it needs to settle, or refinance its liabilities and guarantees as they fall due, including those relating to the AGR judgment,” Vodafone Plc had said.