Idea, Vodafone complete merger to become country’s largest telco

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New Delhi | Published: September 1, 2018 2:36:45 AM

Vodafone India and Idea Cellular on Friday announced the completion of their merger, creating the country’s largest telecom operator with a subscriber base of over 408 million, revenue market share of 32.2% and a subscriber market share of 41.1%.

Idea, Vodafone complete merger to become country’s largest telco

Vodafone India and Idea Cellular on Friday announced the completion of their merger, creating the country’s largest telecom operator with a subscriber base of over 408 million, revenue market share of 32.2% and a subscriber market share of 41.1%.

The combined entity — Vodafone Idea — also has the largest spectrum holdings of around 1850 MHz across bands like 800 MHz, 1800 MHz, etc. It has 340,000 broadband (3G/4G) sites, 200,000 GSM sites and a distribution reach of over 1.7 million retailers and around 15,000 branded stores to service customers.

During the year ended June 30, 2018, Vodafone and Idea generated a revenue of Rs 58,500 crore and an Ebitda of Rs 13,813 crore. Vodafone Idea is expected to generate a Rs 14,000-crore run-rate cost and capex synergies, equivalent to a net present value of around Rs 70,000 crore.

The merged entity is saddled with a debt of Rs 1.09 lakh crore, which according to Bank of America Merril Lynch would constrain their capex to around Rs 14,000 crore for the next couple of years.

Analysts are a little apprehensive about the company’s capacity to hold on to high average revenue per user (Arpu) data subscribers as it would not be able to match Bharti Airtel and Reliance Jio in the 4G network expansion due to a high debt level.

However, sources in Vodafone Idea said that the company will have cash and monetisation assets worth around `24,000-24,500 crore, which are enough to meet capex requirements in the medium term.

Equity infusion of `6,750 crore by Idea and `8,600 crore by Vodafone coupled with the monetisation of standalone towers of both companies for `7,850 crore provides a strong cash balance of over `19,300 crore, which is post the payout of `3,900 crore to the DoT. Besides, Idea has the option to monetise its 11.15% stake in Indus, which would equate to a cash consideration of `5,100 crore.

On debt, Vodafone Group said, “More than 80% of this net debt is owed to the Indian government and is without covenants. On this basis, and adjusting for expected run-rate opex synergies of `8,400 crore, the combined entity would be levered at 5.7x LTM (last twelve months) Ebitda”.

Another issue that Vodafone Idea will face would be losing the maket share to Bharti and Jio in the next few quarters owing to their high investments on 4G eco-system. Both the competitors with a better coverage network and data offerings are most likely to poach Vodafone Idea’s subscribers.

Commenting on the merger, Vodafone Idea chairman Kumar Mangalam Birla said, “Today, we have created India’s leading telecom operator. It is truly a historic moment. And this is much more than just about creating a large business. As Vodafone Idea, we are partnering in this initiative by building a formidable company of international repute, scale and standards.”

Its first CEO, Balesh Sharma said Vodafone Idea has the scale and resources to ensure sustainable customer choice and introduce new technologies. “We are committed to offer both our retail and enterprise customers an excellent experience while fulfilling their evolving digital and connectivity needs via new products, services and solutions. We will offer them more network coverage, more value and more excitement.”

The Aditya Birla Group will separately complete the purchase of a 4.8% stake in Vodafone Idea from Vodafone Group for a total consideration of `2,600 crore. After taking these proceeds into account, this implies a net capital injection by Vodafone Group of `6,000 crore. Following completion, Vodafone will own a 45.2% stake in Vodafone Idea and ABG will own a 26% stake, both on a fully diluted basis. Vodafone will also separately hold a 29.4% stake in the combined entity resulting from the merger between Bharti Infratel and Indus Towers.

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