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Voda-Idea merger: An idea whose time has come

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[vc_row][vc_column][vc_column_text]Cellular telephony in India a loss-making leviathan that cannot last 

By Sindhu Bhattacharya

As it becomes clear that India’s number two and three telecom operators, Vodafone India and Idea Cellular, explore a merger, the question really is why not? For the first time in its history, India—the world’s second largest telecom market—is inching towards a revenue loss.

Analysts say India’s telecom industry could see between 3-5% revenue loss this fiscal as heightened competition and falling ARPUs (Average Revenue Per User) plague the players.

To a large extent, this is a consequence of the arrival of a new entrant in an already crowded market – Reliance Jio Infocomm launched services in September last year with a bouquet of freebies, distorting market pricing and forcing incumbent players to also launch various discounted plans.

With the entry of deep-pocketed RJio making conditions difficult, consolidation can only be a question of time. RJio came with free voice calls for life, free data for a limited period but its freebies continue till date. Remember, India’s telecom market has been fragmented all along. It had almost a dozen operators at peak – while this number has come down, it needs to further whittle down to only a handful of players, who can offer complete data service with high speed data and digital services. Lesser number of players but stronger players could push this market towards profitability at some point, the current fragmented structure surely wont.

Two analysts of brokerage Motilal Oswal, Aliasgar Shakir and Jay Gandhi, said in a note to clients that revenue and financial KPIs (key performance indicators) of India’s telecom market have sharply declined, thanks to the arrival of a new operator and the wireless industry is expected to see a decline of 3-5% in the current fiscal. “This will be for the first time and the market condition will only improve once the new operator starts charging subscribers…..new operator has severely impacted the market,” they said. The current fragmented, multi-operator telecom market should consolidate to only a handful of players.

The arrival of RJio is an indication that the going is getting tough, especially for the big three – Bharti Airtel, Vodafone and Idea. So the talks between Vodafone and Idea signal a good beginning. The merged entity will likely become India’s largest telecom firm, overtaking Bharti, with close to 42% revenue market share and a 36 percent subscriber market share. This means close to half the industry revenues and a third of its subscribers. Besides, the merged entity could report revenues of around Rs 74,500 crore.

Look at the market dynamics pre-RJio. In September last year, Bharti had only a third of the share of revenues while in terms of subscribers, its market share was lower at less than a fourth. And this was the number one operator in the market. Put simply, this means the largest player in the Indian wireless telecom market did not have three in four subscribers and earned only a third of the industry revenues.

Now let us look at the number two and three players. Vodafone had less than a fourth of the revenue pie and just about 19% of a fifth of the total subscribers. Idea fared worse, obviously, with 18.7% revenue share and 16.7% share of subscribers. This clearly goes on to show how fragmented the market already was when RJio made its grand entry.

Lets us now see how the telcos have been performing financially. Vodafone Plc, the British parent, has had to write down close to five-and-a-half billion dollars in India recently. It has been talking of a listing on Indian bourses with little success and has never been profitable here, the world’s second largest telecom market. If a merger were to happen with Idea, it gets to not only perhaps reduce its losses but also a listing on the bourses since Idea is already listed, without having to undergo the IPO process. For Idea too, a merger makes sense. Analysts say it has been weighed down by debt of over Rs 40,000 crore and a merger would enable a re-rating, possible increase in market cap.

In the December quarter of FY17, market leader Bharti suffered due to increased competitive intensity. Third quarter net profit slumped 55 per cent from a year earlier as its voice and data businesses felt the full impact of RJio’s free services. Revenue fell 3 per cent as data and voice rates fell and more subscribers left the operator. Idea also reported a significant dent in its earnings thanks to RJIo’s arrival, reporting its first quarterly loss since getting listed. Its net loss was Rs 384 crore versus net profit of Rs 660 crore in the year-ago period. Revenue declined 3.7% to Rs 8,661 crore.

So will a merger of Vodafone and Idea improve things all round? Ratings agency Fitch had this to say: “A planned merger between Vodafone Group Plc’s Indian subsidiary and Idea Cellular should help them withstand intense price competition in the Indian telco market but is unlikely to lead to increased pricing power for operators in the short term, says Fitch Ratings. We retain our negative outlook on the sector, as fierce competition and rising capex will put pressure on most operators in 2017.”

It went on to prophesise that consolidation is natural in an industry with too many operators and a focus on price competition, and that industry should benefit from such a consolidation in the long term. However, the recent entry of Reliance Jio is likely to ensure that price competition will remain very high for at least one to two years.[/vc_column_text][/vc_column][/vc_row]

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Adani, Torrent compete to purchase Gujarat Titans from CVC Capital

The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

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The Adani Group and Torrent Group are currently negotiating a deal with private equity firm CVC Capital Partners to offload a controlling stake in the Indian Premier League franchise Gujarat Titans. According to sources, close to the development, reports say CVC Capital Partners will be looking to sell a majority interest while retaining a minority share in the franchise.

This becomes important because it is aligned with the end of the lock-in period by the Board of Control for Cricket in India (BCCI), which restricts any new teams from selling stakes until February 2025. The three-year-old franchise Gujarat Titans is reportedly worth $1 billion to $1.5 billion. CVC Capital Partners had paid ₹5,625 crore for the franchise in 2021.

A source close to the development pointed out that IPL franchises have attracted many investors’ interest since the league has proved an asset with a good reputation for money-making capabilities and cash flows. This growing interest of investors embodies the financial value and stability that come with the IPL franchises.

Gautam Adani, who owns teams in the Women’s Premier League and UAE-based International League T20, is understood to be one of the serious buyers. In 2023, Adani’s group won the Ahmedabad franchise in the WPL with a bid of Rs1,289 crore, the highest offer. His interests in this potential deal signal his commitment to expanding his footprint in the cricketing world.

Arvinder Singh, COO of Gujarat Titans, exuded confidence in the financial future of the franchise. He said the team was confident of turning profitable in the next media rights cycle, referring to even the original ten IPL franchises that took four to five years to turn profitable. He added confidently that the Gujarat Titans would not only turn profitable but significantly enhance in brand value.
 
This surging interest of investors in it is evidence of the growing financial attractiveness of IPL franchises, driven by healthy revenue streams and an increasing global footprint. The probable sale of the Gujarat Titans, with the lock-in period coming to a close, will therefore be a defining moment in the changing face of IPL investments.

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PayTm share price slips 2 per cent over SEBI warning

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Paytm

The share price of PayTm fell by nearly 2 per cent on Tuesday following a warning from the the Securities and Exchange Board of India (SEBI).

PayTm’s parent One 97 Communication had got SEBI’s administrative warning letter on some transactions involving the PayTm Payments Bank during fiscal year 2021-2022. The bourses reacted strongly leading to PayTm shares falling by 1.88% to Rs 460.80 per share on the Bombay Stock Exchange.

SEBI said it had noted the violation with concern and said these matters are being viewed very seriously. The regulator warned the company to exercise caution going forward and improve compliance to rules to prevent similar incidents in the future.

The markets regulator added that failure to comply with rules may force it to invoke enforcement actions as per the law.

In its response to SEBI, PayTm said in a media release that it has always followed listing regulations, as well as any change to these rules over time. The company said it would keep up its commitment to maintain and follow high standards of compliance. Paytm said it intends to provide an adequate response to SEBI on this matter.

PayTm said it has always followed Regulation 23 along with Regulation 4(1)(h) of the SEBI Listing Regulations, without including any change made to these rules over time. Paytm added that the letter from  SEBI has no influence on its finances, operations or other activities in any way.

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Zomato, Swiggy hike platform fee by 6% 

After the hike, the platform fee would be Rs 6 per order from an earlier Rs 5 per order.

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The food delivery majors, Zomato and Swiggy, have recently increased their platform fee by 6 per cent for food orders initially in Delhi and Bengaluru.

The food giant is currently charging in the national capital and IT hub, Bengaluru, the platform fee is distinct from delivery fee, goods and services GST, handling charge and restaurant charges.

After the hike, the platform fee would be Rs 6 per order from an earlier Rs 5 per order. Gradually, the higher platform fee is expected to roll out to other cities as well.

Notably, this fee is applicable universally to all food orders, irrespective of customer enrollment in loyalty programmes offered by both food giants. The charges directly contribute to the companies’ revenue streams and cost management efforts. The platform fee goes to the food aggregators to apparently control costs and increase revenues.

In April, they charged Rs 5 per order, but now it’s been increased by Rs 6 per order. That’s a 20% increase in fees for food delivery. This change in their strategy to adjust the price in a market as they expand their services.

Increase in platform fees, impacting how much customers pay for their food deliveries across the board. When customers order food using the app, they will notice different charges, besides the platform fees. These include delivery fees, handling fees, GST (Goods and Services Tax), and charges from the restaurant.

The charges earned by the platform, directly go to the food delivery app, helping to manage all expenses and boost their wages. The food delivery platform aimed to make between Rs 1.25 to Rs 1.5 crore per day through the fee, the app charges.

In August last year, Zomato introduced platform fees of Rs 2 per order for the first time. In October, they raised their platform fees from Rs 2 to Rs 3 in most and in major cities. Additionally,  Zomato is a quick commerce platform.

According to reports, Zomato stock reached its highest price of Rs 232 on the Bombay Stock Exchange. This achievement has made Zomato founder and CEO, Deepinder Goyal, a billionaire. The company has experienced a strong upward trend over the past years, driven largely by the expansion and success of its quick commerce subsidiary in Blinkit.

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