Rise and fall of Vodafone Idea in India

On 31st August 2018, the board of Idea Cellular approved the merger with Vodafone India Ltd, making the new entity the biggest telecom operator in India. Following this great news, a year after the formation of the merger of Vodafone and Idea cellular, the firm’s report card has only got more reds – be it in terms of users, revenues, profitability or execution of strategy, culminating in a top-level management change.


Treasure sight of Vodafone Idea

Vodafone Idea was the most treasured member of the Aditya Birla Group four years back and also the rapidly growing mobile operator in the country with the best industry’s financial ratios. As of March 2015, it had net debt to equity of 0.6x against Bharti Airtel’s 1.8x. The company’s success was most visible in many non-metro cities like Gujarat, Maharashtra, Maharashtra and among other Eastern Uttar Pradesh. It was the giant beneficiary of the Mobile Number Portability (MNP) and att the same time gained subscribers base and revenue market share from most of its rival companies.


The brewing of Issue in the company

The biggest issue for the company is a steadily widening gap between revenues and earnings and its financial liabilities. In the first quarter of the current financial year, the company reported operating loss of Rs 1,037 crore with unadjusted gross revenues dues. The company’s operating profits are insufficient to settle interest on its outstanding debt. The company’s interest liability of Rs 7378 crore in its first half of FY20, having doubled in the last year. As per most of the analyst’s review “all this liability is now sitting on Vodafone Idea’s balance sheet whose interest liability is squeezing the company’s finances dry”.

Among all these, Vodafone India had previously spent Rs 25,810 crore during the 2015 spectrum auction. These two companies together spent around Rs 1.03 trillion on acquiring or renewing their spectrum since 2010. This comprises as much as the total spent on spectrum acquisition by the rest of the operators.

Share of Vodafone Idea was Rs 23.41 as on October 1, 2018, today it is turning in its deep down of Rs 6.55. Investors who have purchased shares in the company’s rights issue at a seemingly low price of Rs 12.50 have lost a considerable weight of 50% of their investment. Talking about subscribers who have left the company’s hopes in hordes by losing 14 million subscribers in the June quarter.

                             Source: NDTV.com

What can be done by the company to fix the brewing issue?

The company expects the sale of its stake of 11.15% in Indus Tower which may yield an approximate amount of Rs 6,000 crore. But most importantly if the government doesn’t provide relief that the distressed company has sought on the extension of the moratorium on spectrum-related payments then “Vodafone Idea will have to shut shop” as per the statement was given by company’s chairman Kumar Mangalam Birla.


Analysis of Issue

Analyzing this whole scenario which the company is facing in the probability of liquidation of Vodafone Idea it will be one of the fastest declines of an industry major in terms of its revenues, assets and market capitalization. This merger has failed to solve both the company’s existing issues. Company’s total debt stands at more than Rs 1lakh crore and their ARPU (Average Revenue Per User) is lowest in the world at Rs 108, while its competitors are at Rs 124 and Rs 129 respectively. Thus it is clear that the merger was short-sighted and lacked direction. Instead of figuring out each other’s problems, they ended up consolidating them. It’s a learning for them that winning the hearts of loyal customers should be a priority to prevent an exodus.