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Voda-Idea merger: An idea whose time has come




[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]

India News

Tata Group’s EV Future: to establish Rs 13,000 crore manufacturing plant in Gujarat

By 2070, Prime Minister Narendra Modi wants India to become a carbon net zero country. Electric vehicles, or EVs are more efficient and environmentally friendlier than conventional gasoline-powered automobiles. Rising fuel prices is also the main reason to switch to electric vehicles.



Tata Group

Salt-to-software conglomerate Tata Group has signed an agreement with the Gujarat government to establish a giga-factory for manufacturing of lithium-ion cells, with an initial investment estimated at approximately 13,000 crore. According to a state government document posted on its website, Tata Agaratas Energy Storage Solutions Pvt., a subsidiary of Tata Group, signed a memorandum of understanding on Friday to establish an electric-vehicle battery plant with a production capacity of 20 gigawatt hours, creating direct and indirect employment for more than 13,000 people.

In past also, Tata Group has been investing heavily in the electric vehicle (EV) market. In 2018, Tata Group launched The Tata Tigor EV for the commercial market. The Tigor EV can be charged up to 80% in 90 minutes and has a range of up to 142 km on a single charge.

The Nexon EV, Tata Motors’ first EV for the personal market, was introduced in 2019. The Nexon EV can be charged up to 80% in 60 minutes and has a range of up to 312 km on a single charge. The Tata Group subsidiary Tata Power also participates in the EV industry.

According to the state government, the Tata facility will establish Gujarat as a global leader in the production of lithium batteries, and the company would receive support in establishing a production eco-system in the region. A spokesman of the Tata Group declined to comment.

By 2070, Prime Minister Narendra Modi wants India to become a carbon net zero country. Electric vehicles, or EVs are more efficient and environmentally friendlier than conventional gasoline-powered automobiles. Rising fuel prices is also the main reason to switch to electric vehicles.

India is expanding the use of EVs nationwide in an effort to become an EV-efficient nation. Although the demand for these vehicles is now being driven by the two- and three-wheeler segments, automakers are already either introducing models or announcing plans to do so in the near future.

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India News

Withdrawal of Rs 2,000 notes statutory exercise not demonetisation: RBI tells Delhi HC



The withdrawal of Rs 2,000 banknotes is a statutory exercise, not demonetisation, the Reserve Bank of India (RBI) told the Delhi High Court on Tuesday.

The high court was hearing a petition challenging the decision by the RBI and SBI that enables the exchange of Rs 2,000 notes without the requirement of an identity proof. The plea filed by Advocate Ashwini Kumar Upadhyay said the decision was arbitrary and against the laws enacted to curb corruption.

Responding to the plea, the RBI said the decision to enable the exchange of Rs 2,000 notes was taken for operational convenience as the withdrawal is not demonetisation but merely a “statutory exercise.”

In his plea, advocate Upadhyay said he wasn’t challenging the decision withdraw the Rs 2000 notes but the decision to exchange the said denomination without requiring any slip or identity proof. The petition argued that the exchange of currency should only be allowed through bank accounts linked with Aadhaar.

It claimed that the current arrangement would only enable mafia and gangsters like “Atiq Ahmed’s henchmen” and Maoists while arguing that today almost every poor person has a Jan Dhan account and BPL persons are also connected to bank accounts.

A Delhi HC bench of Chief Justice Satish Chandra Sharma and Justice Subramanium Prasad said an appropriate order will be passed on the plea.

Advocate Upadhyay claimed in his public interest litigation (PIL) that the notifications by the RBI and the State Bank of India (SBI) that enable the exchange of Rs 2000 notes without requiring a requisition slip and identity proof were arbitrary, irrational and offend Articles 14 of the Indian Constitution.

The PIL claimed that cash transaction in in high value currency is the main source of corruption and used for illegal activities like terrorism, naxalism, separatism, radicalism, gambling, smuggling, money laundering, kidnapping, extortion, bribing and dowry, etc. and a large amount of the currency has reached either in individual’s locker or has “been hoarded by the separatists, terrorists, Maoists, drug smugglers, mining mafias & corrupt people”.

RBI counsel, Senior advocate Parag P Tripathi argued that the emphasised that the court cannot interfere in such matters and the decision was taken to allow exchange of the Rs 2000 currency note for “operational convenience” as the said banknote is not commonly used and other denominations continue to meet currency requirements.

Advocate Tripathi said that no points mentioned by the petitioner impinge or deal with constitutional issues and as such the court cannot interfere.

On May 19, the RBI had announced withdrawal of Rs 2,000 currency notes from circulation, and said existing notes in circulation can either be deposited in bank accounts or exchanged by September 30.

However, the 2,000 notes will continue to be legal tender, it had said, adding that the notes can be exchanged for other denominations from any bank starting May 23, albeit with a limit of Rs. 20,000 per transaction.

Both the RBI and the SBI issued notifications stating that no requisition slip or identity proof is required for exchanging the Rs 2,000 notes.

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India News

Factually baseless: SEBI on claims of investigations against Adani Group since 2016

The Securities and Exchange Board of India (SEBI) on Monday told the Supreme Court that all claims that the market regulator has been investigating the Adani Group since 2016 are “factually baseless” and one must not jump to “premature and wrong conclusions” in the case.



Adani Group

The Securities and Exchange Board of India (SEBI) on Monday told the Supreme Court that all claims that the market regulator has been investigating the Adani Group since 2016 are “factually baseless” and one must not jump to “premature and wrong conclusions” in the case.

In an affidavit filed in the Apex court, SEBI said that no listed company of the Adani Group was among the list of 51 companies that it had investigated for issuing of Global Depository Receipts or GDRs.

According to the affidavit, filed in response to a plea claiming that SEBI had been investigating the Adani group since 2016 and had opposed a six-month extension to its ongoing probe, the market regulator clarified that the ‘investigation’ “referred to in paragraph 5 of the reply affidavit has no relation and/or connection to the issues referred to and/or arising out of the Hindenburg Report.”

It further said that matter pertains to the issuance of GDRs by 51 Indian listed companies which the SEBI was investigating, adding that no listed company of Adani Group was part of the aforesaid 51 companies.

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The SEBI said that after the completion of the investigation, appropriate enforcement actions were taken. Hence, the claims that the SEBI is investigating the Adani Group since 2016 are “factually baseless.”

The regulator said the six-month extension is to ensure that a thorough investigation is carried out keeping in mind the interest of investors and the securities market.

The Supreme Court had on March 2, directed the SEBI to investigate violations by the Adani Group, if any, before and after the release of the damning Hindenburg report.

The SEBI had been asked to file a report within two months, however, on April 29, the regulator filed for a six-month extension to complete the investigation.

Adani Group endured over $120 billion in market losses- nearly half of the conglomerate’s estimated value—since the damning report released by US short-seller Hindenburg Research.

In its critical report, Hindenburg Research accused the Adani Group of indulging in improper use of offshore tax havens and stock manipulation while also raising concerns about high debt and the valuations of seven listed Adani companies.

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