02 Jun 2020 by Pradeep U
Vodafone Idea Share Gains on Stake Sale Reports. Should You Invest? - Research & Ranking

Last week on Friday, Vodafone Idea share prices surged in the morning after news reports emerged that Google was looking to acquire about 5% stake in the telecom company which is a joint venture between Aditya Birla group of India and Vodafone UK.  The merger between Indian arm of Vodafone Group and Idea Cellular was completed on August 31, 2018.

As a result, Vodafone Idea shares witnessed renewed buying interest from retail investors eager to capitalize on any potential gains which could accrue in the Vodafone Idea share prices in the coming days.

However, after BSE sought a clarification from the company, Vodafone Idea issued a statement stating that “Currently, there is no proposal as reported by the media that is being considered at the Board”.

Why Google may still be interested in Vodafone Idea and the impact of the potential deal on Vodafone Idea share price

Google’s interest in purchasing a stake in Vodafone Idea is unconfirmed at this stage. So, it is very difficult to comment on the outcome of the same now. However, given the fact that India is the second-largest telecom market in the world with an estimated size of over US$ 103.9 billion, every tech giant would want a pie of it.

The move if true could be part of Google's strategy to foray into India's booming mobile sector, in a similar line with Facebook which recently acquired 10 per cent stake in Mukesh Ambani's Jio Platform. ‘Consumer+Digital’ is considered the new gold today and Mukesh Ambani led Reliance Industries is one of the first companies in India to create a robust infrastructure with colossal access to it. 

Facebook’s investment in Reliance Jio gives it access to one of the biggest markets in the world that too, with one of the biggest telecom service companies that is driving the same market. Read more about it here.

Google’s potential investment in Vodafone, if it happens could be viewed as an attempt to create the next big connected digital ecosystem in India and capitalize on the new gold, i.e. 'Consumer + Digital'.

In a post-Covid-19 world, India could witness a sharp surge in online shopping with changing consumer mindsets and social distancing and safety taking precedence. Discover more.

While investing don't look at the Vodafone Idea share price, look at the company.

Legendary investor Peter Lynch has always advocated that while investing, an investor should look at the company and what it does rather than looking at the share price.

This certainly is the best advice any investor should consider before investing in Vodafone Idea shares.

Vodafone Idea is currently a debt-laden company with its net debt amounting to over Rs 1.03 lakh crore and over Rs 51,000 crore of balance AGR dues. After paying the principal amount, Vodafone Idea’s AGR dues amount to Rs 21,533 crore.

The telecom sector in India where Vodafone Idea operates has wafer-thin margins due to high operational costs and spectrum costs.

Vodafone Idea share prices have fallen significantly in the last few years. Any stake sale at this point of time by the company to a cash-rich company like Google will bring in the much-needed relief to the company and help in reducing Vodafone Idea’s debt to some extent.

However, from a long-term investor’s perspective, there are simply too many red flags at this point. Few months back at an event, the chairman of the company, Kumar Mangalam Birla had said that the company may have to shut down going ahead in the absence of government relief, sought by the company. Even if the stake sale deal does take place, it might take a long time for the Vodafone Idea share price to recover and reach those levels where it was trading at the time when the merger between Vodafone and Idea took place.

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