Tag: Idea

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Editorial

Is Vodafone Idea Staring at Slow Death?

Vodafone Idea Ltd (Vi) has been all over the news lately. Unfortunately, none of the reports about the company are positive. They are losing lakhs of subscribers rapidly and are destined to file for bankruptcy soon. There is a high level of uncertainty surrounding the survival of the telecom operator. Many feel that Vi is staring at slow death. The company’s shares have plummeted nearly 30% over the past month.

In this article, we take a closer look into the current state of Vodafone Idea and its recent financial performance.

Vi’s Massive Debt

With the exception of Reliance Jio, the major players in the Indian telecom industry are struggling with high debt. Companies have to pay hefty charges for operating and using the public airwaves in our country. They obtain rights to transmit signals over specific bands through telecom spectrum auctions. As of 2019, telecom operators collectively owed nearly Rs 1.47 lakh crore to the Centre. They were offered an extension of two years to pay off all financial obligations with interest. Vodafone Idea’s deferred spectrum charges stand at Rs 1.06 lakh crore! Reports suggest that Vi will have to pay an installment of ~Rs 16,000 crore at the end of March 2022.

Then comes Adjusted Gross Revenue (AGR) dues. Under this revenue-sharing model (introduced in 1999), telecos are required to share a percentage of their total income with the government as annual license fees and spectrum usage charges. AGR covers the revenue earned by telecom firms, including from non-telecom sources such as deposit interests and the sale of assets. [Read more on AGR dues here].

Vodafone Idea’s total liability towards AGR dues stands at Rs 62,180 crore (as of June 30, 2021)! An installment of ~Rs 8,400 is due in March 2022. Moreover, Vi’s debt from banks and financial institutions stands at Rs 23,400 crore. All these have caused a severe dent in the company’s balance sheet.

Heavy Competition

As we know, Vodafone Idea faces stiff competition from Reliance Jio Infocomm and Bharti Airtel. Jio dominates India’s mobile market and has maintained over 35% gross subscriber market share since July 2020. They plan on launching 5G services very soon. On the other hand, Bharti Airtel had outperformed Jio in terms of active subscriber rates over the past few quarters. In February 2021, they also became the first telecom company to demonstrate 5G over a live commercial network in India (in Hyderabad). 

Meanwhile, Vodafone Idea has been losing lakhs of subscribers. The company has been in deep trouble ever since Jio introduced aggressive tariff rates in India. From November 2019 to February 2021, Vi reportedly lost over 5 crore subscribers. Their rivals had collectively added over 6.6 crore subscribers during the same period. The cash-strapped company is finding it extremely difficult to compete with low tariff rates and invest in 4G/5G infrastructure. 

Vi’s management has to constantly focus on retaining customers and paying their AGR dues.

Disappointing Q1 Results

Vi posted its quarterly results for the April-June quarter (Q1 FY22) on August 14, 2021. The results were below the street/analysts’ estimates. Let us look at the main highlights: 

  • Vodafone Idea reported a net loss of Rs 7319.1 crore for the quarter ended June (Q1 FY22). It had posted a net loss of Rs 7,022.8 crore in the previous quarter (Q4 FY21). Net loss in Q1 FY21 stood at Rs 25,460, mainly due to provisioning for AGR dues liability.
  • The telecom operator’s revenue fell 4.7% QoQ (or 14% YoY) to Rs 9,152.3 crore in Q1. This is the company’s lowest quarterly revenue in more than two years. Fewer recharges due to localised lockdowns, free validity extensions for low-cost customers, and a general slowdown in economic activity affected revenue in Q1.
  • Vi’s wireless subscriber base stood at 25.54 crore as of June 30, 2021. Unfortunately, they had lost 1.23 crore subscribers since March. The 4G subscriber base stood at 1.23 crore, a decline of 10 lakh subscribers during the quarter.
  • The Average Revenue Per User (ARPU) declined to Rs 104 in Q1 FY22, compared to Rs 107 in Q4 FY21. For comparison, Bharti Airtel had an ARPU of Rs 146, whereas Jio had an ARPU of Rs 138 in Q1.
  • Vi’s net debt stood at Rs 1,90,670 crore in Q1, an increase of 5.95% QoQ (or 65.1% YoY). 

What Next for Vi?

Sadly, the Vodafone Group has made it clear it will not infuse any additional capital into the loss-making venture with Aditya Birla Group. In a desperate attempt to save Vi, Kumar Mangalam Birla wrote a letter to the Indian government last month. He offered to hand over his stake in the company to any public sector entity. He pleaded with the Centre to consider the “looming crisis” that the telecom operator is going through and bail them out. On August 4, Vodafone Idea announced the Birla has stepped down as Non-Executive Director and Non-Executive Chairman of the Board. Many argue that the Indian telecom industry is struggling now as a result of the brutal or repressive policies introduced by past governments.

Over the past few months, Vi has been trying to convince the Telecom Regulatory Authority of India (TRAI) to impose a floor price or a minimum tariff rate. The company has stated that such a measure will help existing telecom operators to earn more. Vodafone Idea has also pleaded to the Centre to extend the moratorium on spectrum dues. They are eagerly awaiting a judgment on these appeals. 

According to analysts, Vi is staring at a ‘slow death’ if it fails to quickly raise ~Rs 26,000-37,000 crore that it urgently requires to clear AGR dues, payment obligations, and invest in 4G networks. Reports are flying around stating that the Centre will soon announce a telecom relief package, and work is underway to provide aid to stressed telecom companies.

Will Vodafone Idea survive? Or will it completely collapse and die? We will have to patiently wait and watch. Let us know your views on the topic in the comments section of the marketfeed app.

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Editorial

Vodafone Idea is now VI. How Did We get here, and what lies ahead?

Vodafone-Idea Group has re-branded as ‘Vi’ as it looks for a fresh start. The company announced the move after the Supreme Court gave its verdict on the AGR dues case (Read More Here). In the verdict, the apex court gave Vodafone-Idea Ltd, a period of 10 years to clear its pending dues of Rs 54,754 crore.

Many of us still don’t the amazing journey of the brand where it moved from Max Touch to Orange to Hutch to Vodafone to Vodafone Idea and finally now to Vi. So come let’s learn about this journey, both from the perpectives of Vodafone and of Idea.

What is now Vodafone-Idea Ltd is actually a result of a mixture of Mergers and Acquisitions. From Max Touch to Orange to Hutch to Vodafone Idea to Vi. The Indian economy became an easier playing ground for private sector telecom companies in the early 1990’s. Both today’s Idea and today’s Vodafone were early movers in the field.

The Journey of Vodafone

Vodafone India didn’t just start out as Vodafone. At first, it was Hutchison Max Telecom Ltd (HMTL), a joint venture between Hong Kong based Hutchison Whampoa and India’s Max Group. The company was established in 1992 and commercially called Max Touch.

In the year 2000, the company was rebranded to Orange.

In 2005-06, Max group sold its entire 41% stake to Hutchison, and exited the partnership. Meanwhile Essar Group entered as a strategic partner in the equation.

BPL, another telecom player, was merged with Hutchison Essar in 2004. Furthermore, the company rebranded itself from ‘Orange’ to ‘Hutch’ in 2005, after facing an issue with international copyrights.

Thereafter, it also targeted business users and high-end post-paid customers which helped Hutch to consistently generate a higher Average Revenue Per User (ARPU) than its competitors. By adopting this focused growth plan, it was able to establish leading positions in India’s largest markets providing the resources to expand its footprint nationwide. 

Vodafone, which was a leading telecom operator in UK entered the Indian market and acquired the entire 67% stake of Hutchison in February 2007. The company was soon rebranded to Vodafone India. Vodafone later went on to buying out the entire company from other promoters Essar Group and Li Ka Shing Holdings in 2011.

The Journey of Idea

In another side of the story, Aditya Birla Group’s Idea was slowly building up their business as well. Idea Cellular began as Birla Communications Limited in 1995 after GSM licenses were won in Gujarat and Maharashtra circles.

As part of their expansion plans, American telecom giant AT&T was roped in as a strategic partner by Birla in 1996. In 1997, in order to expand into more geographical areas, a tie-up with Tata Communications led by Ratan Tata was also formed. The merged entity was known as Birla AT&T and Tata Communications Ltd, commonly known as BATATA.

The company name was changed to Idea Cellular in 2002 after a series of changes following mergers and joint ventures. In 2004, AT&T exited the partnership to concentrate on their US operations. In 2006, Tata Group exited the partnership as well as they wanted to launch their own telecom brand, which later failed anyway. So after all the partnerships ended, the Birla Group led the company alone until the eventual merger with Vodafone in 2018.

We hope you remember the popular telecom operator Escotel (fun fact : They were the first telecom operator to start operations in Kerala in 1996). Interestingly, Escotel was merged with Idea in 2004 (Another fun fact : Escotel was the disastrous telecom wing of Tractor manufacturer Escorts Ltd).

Four days later after Vodafone entered the country in 2007, Idea Cellular launched its IPO and raised ₹2,125 crores. The IPO was oversubscribed by 57 times. It is interesting to note that the paths of Vodafone and Idea have crossed many times like two soulmates, and ultimately ending up in their merger.

The Merger

The first merger between Vodafone and Idea was approved by The National Company Law Tribunal (NCLT) on 30th August 2018. As per the scheme of the arrangement, Vodafone India and Idea would merge to form a single listed entity. However, both continued to operate two separate brands until September 2020.

Share Holding Pattern of Vodafone Idea Ltd

With Jio entering the Indian telecom sector in 2016, current players in the industry were put in a very tough spot. Mukesh Ambani’s Reliance came into the scene with deep pockets and huge offers. The sudden drop in voice and data tariffs were not tolerable to players like Vodafone and Idea, who were running a highly leveraged business (high debt). Many telecom operators were forced to shut shop, or merge to sustain in the market, including Tata Docomo’s merger with Airtel and the Vodafone-Idea merger.

Hope you all know about the recent AGR case, which has become a huge headache for telecom operators in India. Read more about it here, if you haven’t already. In the recent verdict to the case, The Supreme Court of India has given a period of 10 Years for Vodafone-Idea to pay Rs 54,754 crore, in pending AGR dues.

The Future

On 7th September, Vodafone and Idea rebranded and completely merged into a single brand ‘Vi’. The rebranding was a welcomed move as it came right after the the company’s Annual General Meeting where fundraising prospects were discussed. The share price rose 3% the day the rebranding was announced.

The merged entity is looking to raise Rs 10,000 crore via the sale of its fibre and data centre business, and another Rs 25,000 crore through debt and equity.

The rebranding of Vodafone-Idea along with its fundraising initiative has unlocked many possibilities. Vi is also exploring possibilities of the future 5G spectrum where Jio stands as a tough competition, with its homegrown 5G hardware.

Vodafone-Idea still has long term borrowings worth Rs 1,05,388 crore. It has a cash reserve of Rs 525 crores. Looking at results for Q1FY21, the company can meet its short term obligations, however, it needs to focus on enhancing its cash flow. It cannot afford to finance itself on debt. A cautious investor should watch out for Q2 results, which is likely to tell us how the company has restructured its finances.

Whether or not VI gains traction depends on how it manages to gain back its lost faith by customers and investors. They are currently forced to concentrate on both gaining lost customers and paying their AGR dues. As an investor, one needs to watch out for every single move made by the management of the company. Certainly, the company is too big to fail, with its high levels of debts from leading banks in the country. With the upcoming 5G spectrum sale, the government will want more than just Airtel and Jio to get a healthy bid value. The economy will not be able to handle the fall of this titan.

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Market News

Vodafone Idea Q1 Result: Net Loss at Rs 25,460 crore

Vodafone idea

Vodafone Idea Ltd in its Q1 FY21 result reported a Net Loss of Rs 25,460 crore. Last year in the corresponding quarter, the debt-ridden telecom player reported a net loss of Rs 4873.9 crore. It is almost a five-fold increase in net loss year-on-year (YoY).

Q1 FY21Q4 FY20Q1 FY20QoQ%YoY%
Revenue106,593117,542112,699(-)9.4%(-)6%
Net Profit/Loss(-)254,600(-)116,435(-)48,739(-)118%(-)429%
Operating Profit4,098.44,380.13,650(-)6.43%(+)12.28%
Amount in Rupees Crore

Vodafone India Limited merged into Idea Cellular Limited (ICL) on August 31, 2018. Consequently, the name of the company has been changed from ICL to Vodafone Idea Limited. Vodafone Idea Limited is an Aditya Birla Group and Vodafone Group partnership. Vodafone Idea like many telecoms has been in news lately, because of the AGR Dues Case Pending in the Supreme Court.

You can read more about Telecom AGR Dues here.

Vodafone-Idea’s performance indicators given below show the reduced Subscriber Base and Total Data Subscribers. Other indicators show the increase in BroadBand Usage, Increased Data Volume Usage, Average Data Usage per person, 4G Coverage Population and Total Unique Broadband Towers.

The company’s ARPU(Average Revenue Per User) jumped at the beginning of the lockdown from Rs.109 to Rs.121 but reduced to Rs.114 this quarter. The reason behind this could be the eased restrictions where people started using Commercial/Office Broadband over Personal Data Packs.

Key Performance Indicators

The Future

“We have rolled out a further cost optimization plan across the company in line with the evolving industry structure and business model. Through this, we plan to achieve Rs. 40 billion of annualized cost savings over the next 18 months. As a step in that direction, we are in the process of organization-wide restructuring“, Vodafone Idea said in its press release.

The company also said “The merger of Indus Towers and Bharti Infratel has received FDI approval. The long stop date on the original agreement has been extended to August 31, 2020. We have the option to monetize our 11.15% stake in Indus on completion of the Indus-Infratel merger“.

Vodafone-Idea’s balance AGR dues were placed at Rs 50,400 crores in the preliminary SC hearing. The final hearing is expected to be on 10th August 2020.

The advent of Jio put a huge blow to other telecoms due to its unconventional pricing. The company report shows its interest and willingness in raising liquidity, paying bank AGR dues in due course of time and expansion in terms of infrastructure. If the company manages to raise investment at the same time price competitively the company can very well manage to get back on its feet.

You can read the Official Result by clicking here.

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Market News

SC reserves order on the timeline for AGR dues to be paid.

SC AGR

The Supreme Court today once again reserved its order on the much-talked-of AGR (Adjusted Gross Revenue) case. The timeline for the payment of AGR dues is still debatable.

The Sum and Substance of Today’s Hearing

  •  A three-judge bench of Justices Arun Mishra, S Abdul Nazeer and MR Shah heard the case. The court reserved their order to decide the timeline withing which the telecom operators were to pay their dues.
  • The SC stated that the calculation of AGR dues by the Department Of Telecommunications should be treated as final as that there is no room for self-assessment or renegotiation by any of the respondents.
  • Vodafone-Idea represented by counsel Mukul Rohatgi expressed poor liquidity, disposable assets and lack of sufficient funds on part of Vodafone-Idea to be able to pay the dues. Moreover, he requested for a period of 20 years and at best 15 years for Vodafone-Idea to pay its AGR dues.
  • Bharti Airtel represented by counsel Abhishek Manu Singhvi stated that the Government had wrongly charged Bharti Airtel for Spectrum Usage Charges (SUC) which should not be a part of AGR dues. He requested for a period of 10 or 20 Years since upfront payments could affect the 11,000 employees of the company and services provided by the company itself.
  • Senior Advocate Mohan Parasaran on behalf TATA Telecommunications stated that the company submits to SC that a 7-10 year period would be reasonable for repaying AGR dues.

As per DoT estimates, telecom companies owe a total of Rs 1.19 lakh crore with payments received so far at Rs 26,896 crore. The balance amount to be paid is currently at Rs 92,520 crore.