In this article, we have detailed the AGR case for Vodafone-Idea, its implications, will the company Shut Down or not, some predictions about the stock price, and the 2021 Outlook of the company.
Vodafone Idea – Can it Shut Down? – 2021 Outlook
The short answer is – No.
Now you can read the long answer and reason why it won’t shut down.
The Supreme Court of India has passed the judgment related to the AGR issue and it brings the much-awaited good news for the troubled telecom giant. The Supreme court in its AGR judgment has said that the company can pay the Rs. 53,000 crores of AGR dues in the 10 year period.
Something that Vodafone and Idea wanted for a long time. They requested a 15 year period to pay the dues and the court has given them nearly what they were looking for.
The path ahead is not easy; as they still face Jio and its aggressive pricing strategy. The company has lost market share, talent pool, and most importantly the trust of its users by not caring much about the business for the last 2 years.
The rebranding to V! from Vodafone Idea shows that the company is serious and want to splurge money to regain the lost brand glory.
The company may be able to raise funding privately as Reliance Jio did and can have strategic partners in the future that will ensure better cash flow and expansion.
Apart from paying for the AGR dues, they will have to invest heavily in the roll-out of 5G services in the next couple of years. V! can’t be late to the market with 5G as JIO will grab even more high-value customers from the brand.
Two Major Updates Will Shape Up the Future of the Company:
- How much funding they can get from Investment firms or from other companies willing to invest in the future of VI. These can be in the form of equity sales by promoters or by debentures or other instruments.
- VI has filed an appeal in the Supreme Court of India, along with Airtel and Tata group to reconcile the calculations done by DOT for AGR and there is a hearing in March. If the court agrees to the demand it can lead to a reduction of the AGR burden by several thousand crores.
The path ahead is rocky but the company will survive and sail through with help from promoters and an increase in tariffs in the near future.
Vodafone Idea Share Price – Prediction and Target for 2021
The Vodafone Idea share reached the low of Rs. 3.4 in Feb 2020 and the uncertainty around the survival of the company was at its peak.
In the later months and after the AGR judgment the share price has been rising. It was earlier expected that the Share price can break free and easily touch Rs. 20 target but in the recent months the stock price for Vodafone Idea has also seen corrections and sell-offs once it touches Rs. 12 or moves higher.
Considering the company has sailed through the worst time we are positive about the outlook of the company. It is not going to be easy for the third largest telecom operator considering its weak balance sheet and amount of debt and AGR dues.
However, if Vodafone Idea is able to have a strong partner and investor then it can see a turnaround.
Our overall outlook till there is a strong wind behind the company is neutral and stock price may hit Rs. 20 in the coming months but it won’t rally it there is strong financial backing.
Update 14th Feb 2020 – AGR Verdict and Review Petition
Today, the Supreme Court rejected the review petition filed by Vodafone-Idea and Airtel in the AGR (Adjusted Gross Revenue) case.
Three Bench Judge Panel, headed by Justice Arun Mishra was extremely angry at the Telecom companies for defying the orders to pay dues before the 24th January 2020 deadline. To recall, VIL needs to pay 53,000 crores and Airtel 35,000 Crores.
Both Telecom companies were seeking relief from the apex court in terms of waiver of interest or increase in the payment period. But instead, they got thrashing by the court for not obeying the previous judgment where the court has ordered them to pay the dues.
Justice Arun Mishra said” “The companies have violated the order passed by this court in pith and substance. In spite of the dismissal of the review application, they have not deposited any amount so far.”
“It appears the way in which things are happening that they have scant respect to the directions issued by this court,”
Also, DOT decided to take no action against the incumbent Telecos. They also faced the wrath from justice Arun Mishra. Previously, DOT officials passed an order to take no action against VIL & Airtel for not depositing the required dues.
“This kind of order should not have been passed by the desk officer at all. In the circumstances, we draw contempt proceedings against the desk officer for passing the order and violating the order passed by this court,”
Justice Arun Mishra was furious at the turn of events and asked the companies to clear the dues or the MD and directors need to be present at the next hearing scheduled on 17th March 2020.
This is a subtle way to say, you may go to jail in case you fail to pay the dues to the government. An extremely unpleasant situation for both Mr. Sunil Bharti Mittal and Mr. Kumar Manglam Birla.
The words of the judge sent shivers in the top management of both Telecom companies. Airtel in its quick response has agreed that they will cough up Rs. 10,000 Crore by 20th Feb and the remaining before the next hearing.
DOT officials also sprung to action and have issues notices for the payment of the dues to the Telecom companies.
VIL, on the other hand, seems to be buying time and said they are planning to pay some part of the dues before the next hearing. They have not specified how much and when. But they will pay in the coming days. Also, in the statement shared by VIL, they categorically mention that the company may not continue in case there is no relief from the government or the Supreme Court.
The stock price for VIL tanked by 24% on Friday after the Supreme Court order.
VIL is in a fix as both Mr. Birla and Nick Read has said previously that they are not keen to run the business if they have to pay the full amount.
Also, the recent letter by the company clearly states they may not be able to continue business in the absence of relief from the government.
So, will VIL shut shop? It is a tricky situation and at this point, the company can go in any direction.
Updated – 18/January/2020
Vodafone Idea May Survive the AGR blues as per a recent ET report. The company is planning to take some stern actions to stay afloat.
Why Vodafone Idea May Not Shutdown? 6 Steps Company Plans to take.
- Pay part AGR dues before the 23rd January deadline. VIL can pay upto Rs. 4000 crore to show the court and government that they have the intent to stay afloat and do business.
- Ask the Government to re-evaluate the dues and offer either more relief in terms of payment schedule or the interest on principal payment.
- According to DOT VIL owes 53,000 Crore in dues. However, the company is doing self-assessment of these and sources say they may actually owe Rs. 44,000 Crore.
- The government owes VIL Rs. 9000 crore as GST input credit that the company intends to use to pay the AGR dues.
- Lastly, they are planning to sell the data centers and optic fiber business along with an 11% stake in the Indus Towers to raise money.
- Also, the cash flow for the company has improved as they have increased the rates by up to 40%.
All of the above plus some help from the Vodafone Global and ABG group can make it possible for the company to survive and have a future.
Another interesting update is that RBI is urging the Government to bail out the company to ensure that the loans given by major banks don’t turn into NPAs.
Also, with the country burning due to CAA and other issues it is not prudent for the Narender Modi government to have 300 million VIL users aggravated due to the shutting of the company. Not to mention, it will be a big hassle to port these users to other operators who may find it difficult to maintain QOS (quality of service).
Supreme Court Rejects AGR Plea from Vodafone-Idea, Airtel and Others
17-Jan-2020 – The dark clouds of fear yet again loom over Vodafone and Idea. The Supreme Court of India has rejected the AGR relief plea filed by VIL, Airtel, and Tata-Teleservices. There may be panic in the share market, and the stock price is expected to tumble after today’s AGR judgment. (It tumbled 30% in the opening trade).
On 24th October the Supreme court has given the judgment to widen the AGR definition and decided the case in DOT’s favor. Due to the change in AGR, Bharti Airtel needs to pay 35k Crore, VIL 53K crore, and Tata Teleservices 14k crore to the government.
Telecom operators were expecting some relief from the Honorable Supreme court but the court has decided not to offer any respite.
The review petition was heard by the same 3 bench judges panel (headed by justice Arun Mishra) who have given the original verdict. It was unlikely that they would have reversed the original verdict. The court is not considering the poor financial condition of the sector.
Investors and promoters were expecting some relief from the court. However, there is none.
Mr. Kumar Mangalam Birla has already said they will shut shop if there is no relief on the AGR from the Supreme court or from the government.
On the other hand, Finance Minister Nirmala Sitharaman has already said that they are unlikely to offer much help on the matter apart from the deferment of the payments.
The date for the first installment of dues is 23rd January and we will probably know if VIL will live or die.
It will be a huge catastrophe for 1000s of families that depend on VIL and also for the investors, banks, vendors, and lenders.
Our Economy is already in turmoil, youth have no real jobs but to act as delivery boys for large e-commerce giants. Telecom Sector has space for more than 3 players and it is in the interest of consumers to have more choices.
If VIL shuts, the Telecom sector will be left with just Airtel and JIO who have already raised the price and will again raise it more in the future.
Recently, Airtel raised $3 billion to deal with the AGR dues. After the Review petition judgment, the company has said in a statement that they are disappointed with the outcome and are thinking of filing a curative review petition.
The curative petition is the last constitutional remedy available with a person/company whose review petition has been rejected by the Supreme Court. The chances for reversal of original judgment are slim but Telecos are hoping against all the odds.
It is evident that VIL and Airtel will file the Curative Review Petition in the Supreme Court and may get a different bench of judges to hear the petition.
Also, I think VIL has enough funds to at least pay some of the 53,000 crore dues if they want to and they will pay the upcoming installments. We will know for sure in a week’s time.
Also, we will have to see if the PMO and Finance Ministry offers some help to the distressed telcos who will find it harder to pump more funds in the 5G network after paying hefty dues.
So, let’s wait for official communication from VIL. Only after that, it will be more clear if the company will go with Mr. Birla’s words or will raise capital to fund the dues.
Updated – 27/December/2019
Vodafone Idea Halts Investment in 4G Network Expansion to Save Cash
As per the latest news, Vodafone-Idea has put the 4G network expansion plans on hold.
“While existing orders are being fulfilled by the vendors, Vodafone Idea has put its new 4G expansion plans for greenfield sites on the major technology-driven investments on hold”.
Vodafone-Idea is in a distressed state and without the Government’s help, the ship may sink. Both ABG and Vodafone PLC have already raised hands and are not committing to invest Rs. 53000 Crore to bail out the company from the harsh AGR judgment.
The 4G Vendors and technology partners for the company – ZTE, Huawei, Nokia, and Erricson are worried about their dues and the uncertainty of future orders from the company.
The company has to pay the installment for the AGR dues on 24th January, and this is seen as a measure to save some cash and pay the due amount. Meanwhile Airtel, Vodafone-Idea has also filed a review petition against the Supreme Court order and has also urged the government to look at the relief to ensure the companies can survive.
The flip side of not committing to network expansion is the adverse effect on network quality. Users may suffer more call drops, slower data speeds, and poor call clarity. Notably, Airtel and JIO are already ahead of Vodafone-Idea in the number of towers they are operating.
VIL subscribers are already unsure about the future of the company and may port out if they face network related issues. It is a catch-22 situation for the once impregnable telecom giant.
Mr. Kumar Manglam Birla Says “Will Shut Shop in the absence of AGR Relief”
Mr. Kumar Manglam Birla said in an event in New Delhi that in the absence of stimulus from the government they will have to shut shop.
“It doesn’t make sense to put good money after bad,” he said at an event hosted by the Hindustan Times. “So that would be the end of the story for us. We’d shut shop.”
“I have every reason to believe it won’t happen,” he said, referring to the possibility of liquidation. “But at the same time … it is true that we would shut shop if we don’t get relief. There is no company in the world that can pay that kind of fine in three months.”Kumar Manglam Birla
Let’s read the full story of how once a shining star in telecom is on the verge of bankruptcy and liquidation?
How can the Biggest Telecom Company Shut Down? What is Wrong With the Indian Telecom Sector?
Back in 2017 when Vodafone and Idea merged, it was clear that all is not well in the Indian telecom sector.
The increasing pressure from JIO forced the two biggest telecom businesses to come together and form the largest company.
The revenue and profits took a deep dive with the launch of aggressive plans from JIO in 2016.
But somehow the companies were looking to pass the bad phase, hoping JIO will increase tariffs and they will be able to finally make some money from the business.
Vodafone-Idea posted a quarterly loss of over 4000 crores in early 2019 and losses were still mounting. Not to mention the cost of huge borrowing the company has for buying spectrum and 4G rollout.
These costs are not recovered yet and DOT has dealt another blow to the JIO rivals (Vodafone-Idea and Airtel) in the AGR case.
The Supreme Court verdict that came in October 2019, says that Vodafone-Idea needs to pay Rs. 39,000 crore and a similar amount by Bharti Airtel.
This is more money than what Vodafone-Idea can make in the next 5-8 years considering the current state of tariffs and debt.
I never thought I would be writing this post, considering when I joined the sunrise sector in 2008, fellow workers were getting double-digit hikes every year.
Nevertheless, Vodafone global CEO Mr. Nick Reads has said in a statement that the condition of the company is critical and it will be difficult for the company to survive if government of India fails to offer help.
Additionally, if the latest ET report is to be believed then Mr. Birla is also not considering to pump more money into the telecom black hole.
In a recent even by HT on 5th December, Mr. Birla has clearly stated he is not willing to invest and will shut shop in the absence of relief from the Government.
AGR Issue and Government’s Decision (20th November 2019)
Indian Government has given some relief on 20th November by offering deferment of payment by 2 years. But there is no relief in terms of waiver of interest or principal payment.
Indian Government has specified that the NPV for the payment will remain the same and they will also charge interest on the deferred payment which is to be paid in 18 equal installments.
The situation for Voda-Idea becomes more complex as both the parent companies (ABG group) and Vodafone PLC need to be on the same page to pump more capital in a loss-making business.
There seems to be a clear divide at the moment and none of the parties are looking committed to investing more funds.
On the other hand, Mr. Sunil Bharti Mittal may be able to borrow and fulfill the current monitory obligations.
In either case, the company will have a severe cash crunch and will find it difficult to operate smoothly.
No offense to the Honorable Supreme Court justice but I think the AGR judgment looks harsh considering the state of telecom companies and the logic used to calculate the AGR dues.
Why would telecom companies need to pay a revenue share from non-core business revenues, is difficult to comprehend?
Telecom Sector Outlook and Major Issues
Back in the days, after 2G scam, all the licenses were canceled and several companies shut shop in India.
Non of the foreign investments have been successful that sends a very strong message to the global investor’s community. Look at what happened to the 1000s of crores of investment made by Uninor (Norway), MTS (Sistema), Russia, and Aircel (Maxis) Malaysia.
Everything turned into dirt. Years of hard work and investments vanished due to government policy blunders.
Would anyone think of investing in the telecom sector in the future? No, not really, unless you are sure you can manage the government and the courts as you please.
The only people who have allegedly made money are either the government or those like the ex-telecom minister A. Raja who was acquitted later by the courts.
I am not worried about the loss of money to Mr. Kumar Manglam Birla (owner of Idea Cellular) or the Vodafone UK but about the monopoly in telecom and loss of jobs.
The job loss will not only impact direct employees, their families, distributors, vendors, and off-roll sales force but many indirect jobs.
Already, lakhs of people have lost jobs due to the shutting down of several telecom companies. At a time when the nation is struggling to create any employment for the young people, this can be a big blow for the Mr. Modi government.
There is already surplus telecom professionals looking for jobs in the market, with a major shut down like this, things will become painful for many employees.
Also, there are hardly any suitable jobs for them considering a general slowdown in Automobile, FMCG and retail sector.
BSNL is dying a slow death and as we know the company has already decided to cut 50% of the workforce and is offering VRS to employees.
The only player left in the market is JIO.
Monopolies are bad, and nobody should have an absolute power whether it is Congress, BJP or for the record JIO in this case.
Even after the relief given by the government to defer the Rs. 39,000 crore payment things are not going to be easy for employees.
Before the AGR judgment things were still looking positive as finally, TRAI refused to reduce IUC to Zero in favor of one operator. But the AGR judgment has shaken the industry. The 20-year-old conflict between the government and the companies can become the final nail in the coffin if nothing is done.
Overall, even after the relief given by the government, it is a difficult situation for Voda-Idea as the company has a huge total liability of nearly 1 lakh crore.
It will not be easy for the company to become profitable unless the investors are willing to put in more money and continue for many more years.
Vodafone Idea Latest News and Updates – Job Cuts for 2019?
25/Jan/2019 – Vodafone idea had cut manpower from 21,000 to around 14,500 from September to December and now we were informed that the company is planning to cut more jobs in the next 4-8 weeks.
The news has come from reliable sources outside the organization that shared some of the details.
Struggling with profitability and subscriber decline Vodafone-Idea needs to curtail manpower to reduce the fixed costs and make the company profitable.
The company is planning to remove many job positions and even circles/states may get merged. Essentially to leverage the economy of scales there are several job positions getting merged or even removed.
It is proposed that there is a further cut at all senior levels.
This is going to be difficult for some employees and will come in effect in the coming months.
Thanks to JIO’s aggressive pricing, already the sector has seen many companies pulling the shutter down and forced the merger of these two giants.
It is really hard for telecom employees as there are not too many opportunities in the sector for them anymore. For many moving to other sectors and securing jobs is proving frustrating.
Also planned merger of some circles:
- There may be a merger of some of the circles to improve the economy of scales.
All merged circles will have 1 Circle head and a single Marketing, Finance, CS, Network team. Moreover, All CXO’s are told to cut their 1st line & 2nd line by a significant percentage.
Note* – The story is updated after a response from Vodafone-idea.
Response from Vodafone-Idea
In response to the published story, we have received an official response from Vodafone-Idea, which clearly states that there is no credence about possible job cuts by the company in the coming weeks. The company has stated that these are baseless rumors and shouldn’t be believed.
Updated – 25/Jan/2019
Vodafone-Idea Plans to Raise 25,000 Crore to Rival Jio
In another development, the company is planning to raise about 25,000 crores to battle JIO. The largest telecom operator in the country (Vodafone-Idea) is planning to sell the 11.5% stake in the Indus Towers.
Indus Towers is a telecom tower company jointly owned by Aditya Birla Telecom and the Bharti Infratel Ltd.
Government (DOT) on Thursday, 30th July 2018 has given a final accord to the Vodafone and Idea merger and both the companies are now a merged entity. If a picture can tell you a thousand words, the below image tells you more.
The name on the door has changed from Idea Cellular Ltd to Vodafone Idea Limited (An Aditya Birla Group and Vodafone Partnership). The office address now becomes Birla Centurian Compound, owned by the Kumar Mangalam Birla group.
The Vodafone office is also in Worli, Mumbai and some of them may also be coming to the new office to work soon.
The combined entity has more than 35% market share and is the largest telecom company in the country with 435 million users. Both the companies have made a payment of Rs.7,268.78 crore to the government in the last week (under protest).
Mr. Kumar Mangalam Birla will be the non-executive chairman of the joint entity and Mr. Balesh Sharma (Ex – Vodafone India Head) will be the CEO.
Vodafone and Idea Meger Earlier Details and Story So Far
As per recent updates, Mr. Kumar Manglam Birla has called an Extraordinary General Meeting on 26th June 2018 where the new company will be renamed to Vodafone Idea Limited from Idea Cellular Ltd.
Also, this news was filed by the company today with the regulatory and the news of the name change of the company is confirmed. The name change may seem like a simple exercise but it is not there are several complexities.
First of all, both the companies may have to re-work on the brand identity and create new advertising campaigns, retail posters, banners, billboards, and even a new Logo. Updating every street and corner of the country with the new Brand identity may be a daunting and very expensive task (may run into 100s of Crores).
But it is a necessary exercise that probably the brand team for both the companies will be planning currently and we may see some new creative ads from the joint identity and new banners in the coming days.
Interestingly, will they also merge the social media pages and twitter handles with millions of followers is yet to be seen.
Also, Idea plans to raise a large capital of Rs. 15,000 crore via-non convertible debentures.
The final approval from DOT is still pending but the expectations are that both companies will complete the merger process in the coming months.
Previous updates about the Merger.
The Vodafone and Idea Merger was announced back in March 2017, and it is the biggest telecom merger ever in India. To me, it was one the most shocking news in 9 years of my telecom experience.
Vodafone and Ideas are giants, employing over 10,000 people each, and a merger was never on cards before JIO happened.
5000+ Employees can Lose Job
As per a recent report published in Economic Times, the nodal team handling the merger has advised both the companies to collectively shed 5000 jobs. There are going to be role duplications in different departments and to save costs and improve efficiency both the companies need to curtail the manpower.
The telecom sector is debt-ridden due to huge investments in network infrastructure, 3G & 4G licenses, and the unbearable spectrum costs. Add to it the falling revenue per user, and profitability per subscriber, the situation becomes grimmer.
The combined debt of both telcos exceeds Rs. 1,20,000 crores, and it is very difficult for both the companies to continue with excess manpower.
Whose Jobs Is At Risk?
Most of the people with a poor rating in the current appraisal are at most risk. As per ET report, people from the Supply chain or more commonly called the Commercial department can face the axe where there is job role duplication.
But these are not the only roles, as per my own Industry information, there will be Job Cuts in Sales, Marketing, HR, Networks as well as Service delivery where job roles become redundant.
Especially, if we take sales as an example, it will be difficult to accommodate two Area Sales managers or Zonal heads or even the Sales heads for the same region. There might be some rationing.
Notably, Idea employees over 11,000 people and Vodafone has around 10,000 staff. If we consider 5k job cuts, then we are talking about curtailing 24% of the total workforce. The combined entity can function with 74% employees, as per this estimate.
Recently, I had a discussion with one of my ex-colleagues, who now works for Vodafone, he shared the mood and work environment is full of negativity amidst the fear of losing job.
People are trying desperately to get out to other sectors, especially in E-commerce but the Job opportunities are limited.
Add to it the manpower pool from Aircel and Tata Docomo, whose future is more uncertain, the market is flooded with telecom employees. Also, the opportunities within the sector are shrinking as Airtel is also under immense profitability pressure.
Vodafone Statement On Job Cuts
Vodafone has denied that this news is untrue and purely speculative. The company has yet not decided on the number of job cuts and is still working on the merger process.
However, the insider information is that the matter is discussed at the top level but yet no details are available even to senior employees.
Here is an article where the Telecom Minister Mr. Manoj Sinha stated that the telecom sector will generate 4 lakh jobs in the next 5 years, published in February 2018.
Frankly, I don’t see that happening, in fact, the sector is consolidating. Not only telecom company employees are losing jobs but also people working at telecom vendors, Value added service companies are getting the pink slip.
This is a very sensitive topic and rumors can create panic in the employees, so companies will not share much information till they make a formal announcement.
Lay-offs are uncommon in Birla and Tata companies as they have very strong human ethics. Probably, this is the first time we may see a Birla company going for a mass job cut.
Mr. Kumar Mangalam Birla owns Idea Cellular while Vodafone India is part of the global Vodafone PLC group. Notably, Vodafone is the number 2 operator in India, while Idea Cellular is 3rd in terms of subscriber market share.
The merger will create largest telecom company in India with a subscriber base of 410 million. Airtel is currently the market leader with 292 million users as per the last DOT data while Mukesh Ambani led RJIO has 175 Million subscribers.
Subscriber Market Share
The dropping tariffs, and rising spectrum & infrastructure costs, and most all, the invasion of JIO has changed the circumstances. All of this has lead to the forced merger of the two large telecom giants.
While JIO launch has been a boon for the customers, who have already moved from using 1 GB data a month to using 1GB daily. Telecos, on the other hand, have seen revenue and profitability eroding due to dropping realization rate for data as well as voice business.
More challenges are there regarding technology integration of billing and other systems to work seamlessly for Voda and Idea.
The merger process is likely to finish in May or June 2018. However, both the companies face several hurdles in the merger, the biggest will be managing employees and offer them suitable Job roles and location.
Merged Entity Stakes
Mr. Birla will have to pay Vodafone 38,740 crores to buy the 4.9% stake at a later date. As per the initial merger agreement, Vodafone will have a 50% stake, and Idea promoters(Mr. Birla) will own 21.1% while public shareholders will have a 28.9% stake in the combined entity.
Vodafone will offload a 4.9% share to Mr. Birla who will then have a 26% stake in the combined entity. Vodafone PLC will have a 45.1% stake after the transfer process is complete.
On 24th July 2017, the Competition Commission of India (CCI) has given its nod to the Idea Cellular and Vodafone India merger.
Now the merger process is continuing at both the Organizations, however, there is still final approval pending from the Department of Telecom.
The combined entity will have a much stronger balance sheet, more economies of scale and a larger pool of resources to battle against JIO and Airtel.
Indian telecom once was a rising sector for staffers, with exponential growth in salary and perks. However, now it is struggling to keep the best talent due to depleting margins and downturn.
On the other hand, things have become fantastic for consumers who now enjoy the cheapest telecom tariffs they have ever got.
Jio has completely changed the game for everyone.
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