Kumar Mangalam Birla Steps Down As Vodafone Idea Chairman, Himanshu Kapadia To Take Over

Kumar Mangalam Birla Steps Down As Vodafone Idea Chairman, Himanshu Kapadia To Take Over

Highlights:

  • Himanshu Kapania, a telecom veteran, will take over after KM Birla.
  • The move emphasises the gravity of the crisis that has engulfed the sector.
  • Any further equity investment into Vi has been ruled out by Vodafone Group.

The board of directors of Vodafone Idea Ltd accepted chairman Kumar Mangalam Birla’s plea to resign on Wednesday, as he distanced himself from the struggling telecom operator, highlighting the gravity of the crisis that has enveloped the once-booming crucial sector.

Vodafone Idea said in a stock exchange statement that Birla will be replaced by Aditya Birla Group and telecom industry veteran Himanshu Kapania. Sushil Agarwal, the Aditya Birla Group’s chief financial officer, has been appointed as an additional director to the company’s board.

Birla’s decision to resign as chairman of Vodafone Idea comes just one day after it was revealed that he had written to cabinet secretary Rajiv Gauba, offering to sell the Aditya Birla Group’s stake in the company to any government-approved organisation. Birla justified the offer in his letter by citing Vodafone Idea’s severe financial position and impending bankruptcy.

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“It’s evident that he believes that continuing as chairman after promising to renounce the stake is morally wrong.” According to a former executive of the Aditya Birla Group, who did not want to be identified, “In any case, it’s normal for him to separate himself from the company, even if the group’s presence on the board would remain same, ” the person said.

With Vodafone Idea’s future on the line, the telecom sector appears to be headed for a duopoly, which will limit customer choice and potentially lead to steep pricing increases. Policy reversals, negative court rulings, exorbitant spectrum pricing, and hefty licence fees have turned the once-thriving industry into a graveyard for businesses. Investors, both foreign and domestic, such as the Vodafone Group in the United Kingdom, Telenor in Norway, MTS in Russia, Docomo in Japan, and Etisalat in the United Arab Emirates, as well as India’s Tata Group, have sunk vast sums of money into their telecom operations in India with nothing to show for it.

Reliance Jio Infocomm Ltd, which stole market leadership from Vodafone Idea and Bharti Airtel Ltd within its first three years of existence, is the only company in the sector that has recently prospered.

In a similar event, Vodafone Group has ruled out any additional stock injections into its Indian telecom unit, but has declined to comment on Birla’s offer to sell his stake.

Vodafone Idea has been attempting to acquire funds in order to pay off huge regulatory debts owing to the government in the form of licence and spectrum fees. It has suffered a sharp decline in its user base over the last year, ceding market share to rivals Bharti Airtel and Reliance Jio while reporting losses for several quarters.

It has to raise Rs.22,500 crore between December and April to pay off a mix of regular debt to lenders, AGR (adjusted gross revenue), and spectrum dues. It owes the remaining Rs. 50,399.63 crore of its AGR liabilities, of which it has paid Rs. 7,854.37 crore.

According to the person cited above, the future of Vodafone is now dependent on a possible government bailout. The company is requesting a payment moratorium on spectrum dues as well as a restructure of its bank loans. Experts cautioned, however, that these steps may only provide a limited reprieve. “The only conceivable option is for the government to convert all or a substantial portion of its outstanding debts into equity, making it the largest shareholder. However, such a move could have repercussions,” a telecom analyst who requested anonymity warned.

“Vodafone Idea will have a positive net worth, after which it will be able to raise investments to fund capex and working capital, supported by its cash flows as it continues Ebitda-positive,” according to the analyst.

“This is a unique situation, and the sector’s entire health is under jeopardy. In several cases, the government has worked with the private sector to run profitable businesses. Allowing a duopoly in a market when a big portion of the population is still poor is problematic, according to the analyst.

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Swastika Dubey

Swastika Dubey is a content writer who has a keen interest in politics, fashion, and lifestyle. She is a post-graduate in Economics and loves to listen to classic old Hindi songs and travel to new places in her leisure time. Her writing is well researched, covering important aspects and core of the topic covering crucial points.

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