Vodafone Races Against Time To Salvage India Deal

Vodafone could soon have another tough call to make in India. Since the British mobile giant unveiled a merger of its local business with Kumar Mangalam Birla’s Idea Cellular in early 2017, the stock price has plummeted by about 90 %. As the company focuses on generating synergies, rivals are adding 4G users faster. More capital may be necessary.

There was little doubt Jio would shake up the industry. The surprise is that rival Bharti Airtel, backed by Singapore Telecommunications, is making a mark, too. The result for Vodafone Idea has been a sharp slowdown in adding the most lucrative customers. Its number of 4G subscribers grew just 5% between the fourth quarter and the first quarter, compared to a rate of 15% about one year earlier.

In some ways, the merger has been a success. The company cut the delivery time for cost savings to two years from four and says it has already come through with about 70% of the $10 billion promised. More savings are likely, too. But disruption from combining the Vodafone and Idea networks has led to an increase in dropped calls. The deterioration of service quality is a turnoff for high-value customers.

Vodafone Idea raised $3.6 billion in a deeply discounted rights issue earlier this year. At this rate, another cash call is likely. The company cannot count on data prices becoming rational any time soon. Net debt stands at $14 billion, a whopping 14 times trailing EBITDA. Selling telecom towers and fibre assets should help reduce borrowing levels. Britain’sVodafone is also prepared to cash in on its separate Indian infrastructure interests to back the operator if needed. It’s now been a precarious race against time.

Vodafone Idea shares closed down 3.6% on Aug. 27 at 5.30 rupees. They have fallen about 90% since Vodafone announced plans in March 2017 to merge its Indian business with Idea Cellular.

Before the deal was completed in September 2018, the shares were traded as Idea Cellular.

Idea Cellular is 44% owned by Britain’sVodafone and 27% by Aditya Birla Group.―Nasdaq