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Vodafone Idea Limited

Vodafone India and Idea Cellular, two of India’s leading operators partnered together on August 31, 2018 to form Vodafone Idea Limited, building a company of international repute, scale, and standards. With over 408 million subscribers, #1 RMS in nine circles, broadband network of 340,000 sites, with distribution reach with 1.7 million retail outlets, it seemed a new champion for Digital India. With 1850 MHz of total spectrum holding, over 200,000 unique GSM sites, and 235,000 km of fiber, the merged company offers voice and broadband connectivity across the country, covering 92 percent of the population and reaching nearly 500,000 towns and villages. A formidable entity indeed!

The merger is expected to generate Rs 140 billion annual synergy, including OpEx synergies of Rs 84 billion, equivalent to a net present value of approximately Rs 700 billion. The equity infusion of Rs 67.5 billion at Idea and Rs 86 billion at Vodafone coupled with monetization of standalone towers of both companies for an enterprise value of Rs 78.5 billion, provides the company a strong cash balance of over Rs 193 billion post payout of Rs 39 billion to the DoT. Additionally, the company has an option to monetize an 11.15 percent stake in Indus, which would equate to a cash consideration of Rs 51 billion. As at 30 June 2018, net debt was Rs 1092 billion.

With the merger behind us, financial analysts are expecting the telco to have a difficult time. Kotak Institutional Equities noted in their report that the Vodafone Idea combine is expected to post a wider net loss of Rs 3047 crore during 2Q19, up from over Rs 1784 crore in the quarter ended June 30, 2018, even though the company is estimated to post an increase of 28 percent QoQ in revenues to about Rs 7547 crore. While the EBITDA is expected to increase by 5.5 percent sequentially to over Rs 695 crore, the EBITDA margins are likely to fall by 200 basis points to 9.2 percent. However, Idea (ex-Vodafone) on a like-on-like basis, is estimated to report a 34 percent QoQ EBITDA decline. And this is after basking in some initial merger cost synergy gains. Vodafone Idea’s ARPU is expected to be in the range of Rs 96-97 versus Rs 100 in the preceding quarter.

IIFL Institutional Equities and ICICI Securities estimate a net loss in the vicinity of Rs 2600 crore, although Credit Suisse pegs it lower at Rs 1050.5 crore. Revenue is estimated to be in the Rs 7813–8106 crore range for the September quarter. It might also have to shell out a hefty penalty for exiting tower contracts, which if fully provided, could be to the tune of Rs 3000–3500 crore, but is likely to be treated as an extraordinary item.

Various integration challenges have also emerged ranging from trimming excess mobile sites to rationalizing human resources. The company has a tough task cut out as it aims to bring operational synergies in an extremely competitive market. Removing overlapping mobile sites, aligning networks with equipment from two different vendors, including removing duplication of towers, limiting head count, recovering Rs 7249 crore paid to DoT for merging their mobile business are a few obvious ones.

Idea Cellular Limited


Structural changes in the consumption of mobile telephony services. As wireless data adoption in FY18 saw a strong surge with the launch of unlimited data bundled plans, Idea witnessed record wireless broadband data subscriber addition of 15.1 million this year, improving the overall broadband penetration from 13.0 percent in FY17 to 20.5 percent in FY18. The company’s wireless broadband subscriber (EoP) base stood at 39.8 million out of total 46.8 million mobile data users. Similarly, Idea witnessed strong return of subscriber addition with 12.2 million Net customer adds on VLR in H2FY18. Idea improved its subscriber market share (VLR) from 19.4 percent in February 2017 to 20.9 percent in February 2018. The company’s overall subscriber base (VLR) stood at 207.7 million as on March 31, 2018.

Significant investments underway to build a robust broadband infrastructure. During FY18, Idea continued aggressive expansion of its wireless broadband infrastructure, adding 44,856 broadband sites (3G+4G) during the year. The broadband sites increased from 110,054 as on March 31, 2017 to 154,910 sites as of March 31, 2018, taking the overall network footprint on EoP to 286,356 sites (GSM+3G+4G). The wireless broadband population under coverage now expands beyond 650 million Indians spread across 164,000 towns and villages in 22 services areas. Idea started deploying the 2300 MHz TDD spectrum in its leadership circles of Maharashtra and Kerala and 2500 MHz TDD spectrum in Andhra Pradesh to further augment its wireless data capacity. The company expanded its fiber network from 115,500 km (March 31, 2016) to 156,800 km as on March 31, 2018. Idea also launched voice over LTE (VoLTE) services for employees in select circles recently and is scheduled to introduce VoLTE services in a phased manner for its customers from May 2018.

The overall CapEx spend for the year was Rs 70 billion, the majority of which was utilized for 4G expansion. The company’s gross investment in fixed assets has risen to nearly Rs 1255 billion. The monetization of this front loaded large investment in spectrum and equipment is inevitable as the Digital India mission gathers momentum and mobile internet penetration improves.

Rates continued to fall in 4QFY18. The explosion in voice volumes driven by higher adoption of unlimited bundled plans has led to Idea’s highest ever sequential quarterly voice minutes growth @16.9 percent in 4QFY18 (on the back of 10.8 percent growth in 3QFY18). The sharp increase in volumes led to voice rate (including the impact of reduction in international IUC rate) fall by 20 percent to 13.4 paisa per minute (vs. 16.8 paisa in 3QFY18). Similarly, the mobile data volume (2G+3G+4G) continued to witness robust sequential quarterly growth of 43.2 percent (on the back of sequential quarterly growth of 30.2 percent in 3QFY18) as Idea’s pan Indian mobile data network carried 818 billion MB of data volume this quarter. However, the mobile data rate decreased to 1.4 paisa per MB, down 31.4 percent versus 2.0 paisa per MB in 3QFY18.

The overall subscriber momentum remained strong with 6 million net adds on EoP in 4QFY18. But the blended overall customer ARPU downgraded from Rs 114 in 3QFY18 to Rs 105 in 4QFY18 due to enhanced competitive intensity. This has led to a sequential quarterly revenue decline of 5.7 percent to Rs 61,373 million in 4QFY18 (vs. Rs 65,097 million in 3QFY18) including revenue impact of Rs 520 million due to reduction in international IUC from 53 paisa to 30 paisa per minute w.e.f. February 1, 2018. The EBITDA for the quarter stands at Rs 14,473 million.

Overall financial performance remained under pressure in FY18. During the year, the dual negative factors of (a) steep reduction in domestic and international MTC settlement rate and (b) unrelenting rate pressure on voice and mobile data services as high ARPU consumers migrate to lower priced unlimited voice bundled data plans resulted in 20.5 percent decline in Idea’s gross revenue in FY18 to Rs 282,789 million (vs. FY17 revenue of Rs 355,757 million). While the company remained cautiously optimistic on India’s growth story and continued to expand its scale of operations, this tumultuous phase impacted Idea’s EBITDA during the current financial year by 41.0 percent to 60,476 million (vs. Rs 102,436 million in FY17). The EBITDA margin for the year declined to 21.4 percent from 28.8 percent in FY17. Meanwhile, the company remains committed to optimize its operating costs in the new sector paradigm.

The Depreciation and Amortization charge and Interest and Financing Cost (Net) for FY18 stood at Rs 84,091 million and Rs 44,600 million respectively resulting in the unprecedented standalone PAT loss of Rs 41,628 million in FY18 (vs. PAT loss of Rs 4075 million in FY17). The consolidated total comprehensive income (including proportionate share from Indus and ABIPBL) stands at a loss of Rs 41,399 million in FY18 (vs. loss of Rs 4040 million in FY17). The Net Debt as on 31st March 2018 stands at Rs 523.3 billion, including a large component of debt from DoT under the Deferred Payment Obligation for spectrum acquired in auctions.

Update on standalone tower asset monetization. On November 13, 2017, Idea and Vodafone, announced the sale of their respective standalone tower businesses in India to ATC Telecom Infrastructure Private Limited (American Tower) for a combined enterprise value of Rs 78.5 billion to strengthen the balance sheet of the merged entity. Vodafone India had already received Rs 38.5 billion for its standalone towers and Idea expected to receive its due of Rs 40 billion in 1HCY18 after necessary FDI approval was received for acquisition of ICISL (Idea’s 100 percent tower subsidiary) by American Tower.

Idea successfully completed equity raising of Rs 67.5 billion, monetization of Indus Tower stake. On February 12, 2018, the company issued and allotted 326.6 million equity shares at a price of Rs 99.50 per share on a preferential basis to the promoter group entities for a total consideration of Rs 32.5 billion. The company also announced successful closure of its Qualified Institutional Placement on February 23, 2018 and allotted approximately 424.2 million equity shares to qualified institutional buyers, at an issue price of Rs 82.50 per equity share, aggregating to approximately Rs 35 billion. The equity raise of Rs 67.5 billion reduced Idea’s net-debt and as a result Vodafone net-debt contribution to the merged entity will also be reduced by a commensurate amount.

On April 25, 2018, the merger of Bharti Infratel and Indus towers was announced which will create the largest tower infrastructure company in the world (excluding China) with 163,000 towers pan India.


Idea Cellular posted a net profit of Rs 263.6 crore for the April–June period, after taking a Rs 3364.5 crore exceptional gain from the sale of Idea Cellular Infrastructure Services to American Tower Corp. Without the gain, it would have suffered a Rs 2757.6 crore loss. Gross revenue for the fiscal first quarter fell nearly 28 percent to Rs 5889.2 crore.

Idea’s average revenue per user fell sequentially to Rs 100 from Rs 105 and its subscriber base fell from 194.5 million in the previous quarter to 187.9 million. EBITDA fell nearly 65 percent on-year to Rs 659.5 crore and the EBITDA margin declined to 11.2 percent from 23.6 percent in the January–March period. It had a debt of Rs 50,580.5 crore at the end of the June quarter, when it saw an equity infusion of Rs 6750 crore. Quarterly voice minutes at 349.5 billion grew 39.4 percent on-year, while monthly broadband data usage increased to 8 GB from 3 GB.

Vodafone India Limited


Vodafone India posted an operating profit of Rs 9805 crore for 2017-18. The UK-based group had reported an operating loss of around Rs 30,690 crore for 2016-17 on account of Vodafone Group’s cutting down the valuation of its Indian business by taking gross impairment charge of €4.5 billion.

It reported an 18.7 percent decline in organic service revenue to around Rs 35,045 crore in 2017-18 compared to Rs 42,927 crore service revenue registered in the preceding fiscal. Data traffic on the network of Vodafone India increased four-fold but the company could not reap financial benefits because of sharp decline in data prices.

The net debt of Vodafone India stood at Rs 58,119 crore or €7.7 billion at the end of the period, down from Rs 64,014 crore (€8.7 billion) at the end of the prior financial year. The decline was due to the positive translation impact of closing foreign exchange rates on the debt balance of €1.2 billion and proceeds of Rs 3850 crore from the sale of Vodafone India’s standalone towers to American Tower Corporation.

The results for FY18 comprised a non-cash charge of 3170 million euros (2245 million euros net of tax) to reduce the carrying value of Vodafone India to fair value less costs to sell.


Vodafone India gained 1 million subscribers in India during 1QFY19 with data connections standing at 77 million. Its service revenue fell 31 percent to €955 million (Rs 7646 crore) from €1.38 billion a year earlier. The decline from the preceding quarter was limited to 1.4 percent. In all of FY 2017-18, the company had added 76 million data users.

Data usage per subscriber at the end of the quarter stood at 4.6 GB, up from 3.5 GB in the previous quarter.

Postpaid ARPUs declined by 20 percent and prepaid by 28 percent in the quarter. This pricing pressure was mitigated as customers consolidated spending onto a single-SIM following the increased penetration of unlimited offers, which were by July 2018 adopted by 29 percent of the prepaid customer base. Its total subscriber base declined by 3 million sequentially, reflecting the SIM consolidation trend across the market, totaling 219.7 million in July 2018.

“Our business managed costs extremely well, which helped mitigate the reduction in our EBITDA margin despite rolling out 50,000 3G/4G sites during the year. The cost initiatives included active network site sharing, renegotiation of tower maintenance contracts and closure of sites with low usage,”

Sunil Sood
Managing Director,
Vodafone India

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