Big move by Kumar Mangalam Birla, buys 1.86 crore shares in this company, challenges Mukesh Ambani’s...

On September 6, Kumar Mangalam Birla made a startling move. While Vodafone Idea, the debt-ridden telecom giant, has faced a bleak outlook, Birla doubled down. The promoter of the struggling telco bought an additional 1.86 crore shares, leaving market watchers curious—what could be behind this bold decision?

According to recent shareholding data, Birla isn’t the only one eyeing Vodafone Idea, although the promoters’ overall stake in the company has been reduced. By July 19, 2024, the promoter group had cut its stake from 48.91 percent in March to 37.2 percent. This trimming comes amidst growing interest from foreign institutional investors (FIIs) and retail investors, who have been rapidly increasing their holdings.

FIIs, in particular, seem to be banking on a future revival. From a modest 2 percent stake in March 2024, their shareholding surged to 12.8 percent by July. Retail investors have also been bullish, increasing their stake by over 500 basis points to reach 19.9 percent in the same period.

However, the market's reaction to Birla’s fresh infusion wasn’t universally optimistic. On the very day of the stake increase, international brokerage Goldman Sachs maintained its grim stance. In a September 6 report, the brokerage kept a 'Sell' rating on Vodafone Idea stock and set a target price of Rs 2.50, suggesting a daunting 83 percent downside from current levels. According to Goldman Sachs, the company’s road to recovery is riddled with hurdles—free cash flow break-even remains distant, and market share erosion seems inevitable, with the brokerage predicting another 300 basis points loss in the coming years.

Yet, not all opinions are as pessimistic. UBS, another international brokerage, sees a silver lining. As telecom companies enter a new cycle of tariff hikes, UBS predicts a significant revenue increase, expecting 60-75 percent of the tariff hikes to translate into higher income over the next three quarters. Additionally, with fewer consumers using dual SIMs, subscriber churn is expected to be lower, offering a glimpse of hope.

Kumar Mangalam Birla’s increased stake signals faith, but is it a calculated risk or a desperate attempt to salvage a sinking ship? Only time will reveal whether Vodafone Idea will rise from the ashes or continue to struggle under its debt load.