Vodafone Idea: The telecommunications industry is an essential component of modern civilization, connecting individuals and companies throughout the world. It has developed strongly throughout a period transforming from traditional landlines to mobile networks, the internet, and now 5G. This industry has transformed communication by facilitating smooth data transfer and promoting global connectivity. In this article, we can see Vodafone Idea Limited’s financials, merger, and future plans of the company.

Industry Overview Of Vodafone Idea

India is now 5th largest economy in the world and is expected to become the third-largest economy in 2028. In the Indian telecom sector, ARPU will be $2.08 / month. India has broadband subscribers of the wireless network to be 866 million and wireline to be 38 million subscribers. It will be 23 times more than wireline subscribers. In India, 4G wireless penetration will be 57% of the population, smartphone adoption will be 62% of the population and 4G/5G wireless penetration will be 66% of the population.

India’s market has a rapid digital revolution of 1.4 billion people in the world‘s largest unique identity program with authentication by mobile, more than 1 billion active wireless phone subscribers and 43.1% rural internet penetration in September FY20. Telecom sector Revenue growth of CAGR will be 5.92% over the last 10 years.

Company Overview Of Vodafone Idea

Vodafone India Limited (VIL) was established on 31st August 2018. It is one of the mobile network providers in India.  Vodafone Idea is India’s third-largest cellular provider, offering voice, internet, enterprise, and value-added services. VIL works in 16 countries to provide operating networks and 44 countries in partner networks. It was the partnership with Aditya Birla Grop and Vodafone Group Plc. 

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VI provides the networks of 2G, 3G and 4G types of equipment and the presence of 1,83,800 locations and over 4,30,700 broadband sites(3G+4G+5G). In 2016, Reliance Jio entered by providing free services to customers and they started capturing the market. So in 2018, Vodafone India and Idea Cellular merged, becoming India’s largest telecom operator. Vodafone and Idea Limited will hold a market share of 19.3% in Dec 2023.

Merger Of Vodafone Idea

The Vodafone Idea Limited merger commenced in March 2017 and was finalized on 31st August 2018. The reason for the merger is the disruptive entry of Reliance Jio into the market. It initiated a price war in the telecom industry. The merger aimed to improve the company’s market position against Jio and Airtel.

Vodafone Idea holds only 19.3% of the market. This merger helps maximize the subscriber base for VIL and helps to improve the debt position of the company. It also helps to save on the cost of operation, synergies and spectrum will impact future growth of the company.

Segment analysis Of Vodafone Idea

Vodafone Idea Limited has subscribers of 215 million+ in Q3 FY24. Vodafone Idea has an extensive network of 8,005 MHz spectrum holding, 183,400+ unique locations, 4,38,900+ broadband sites and 2,98,000+ km OFC. The company has expanded the reach of more than 4,87,000 towns and villages coverage.

Vodafone Idea has a 4G coverage expansion of 1.2 billion+ population with a daily data capacity of 82PB per day in Dec 2023. It has 17 priority circles that account for more than 98% of revenue (92%+ of industry revenue). The company has increased in Blended mobile ARPU of CAGR by 3.1% and Average wireless data subscribers with a CAGR of 106.9% and voice minutes of usage per subscriber of CAGR by 14.2% over the past 8 years.

Spectrum Of Vodafone Idea

Vodafone Idea Limited has a 4G spectrum excluding 5G at 1775.2 MHz and subscribers will be 215.2 million. The company has the highest 4G spectrum per million subscribers (8.25) compared to Airtel (6.22) and Jio (4.02). It is expected to drive near-term growth to support the migration of entire 4G subs to 5G.

The company provides a 5G spectrum of 850 MHz and subscribers to 5G are 125.2 million. The 5G spectrum per million 4G subscribers will be 6.77. The spectrum excluding millimeter waves per million subscribers of the company is 12.20. It is the second highest in the 5G spectrum and spectrum waves per million subscribers after Airtel.

In Q3 FY24, the Company had a total subscriber base of 215 million. It has decreased by 2.27% compared to the previous quarter. However, the company’s 4G subscriber base increased from 125 million in Q2 to 126 million in Q3 FY24.

The company’s average revenue per subscriber has increased from Rs. 142 to Rs. 145 in Q3 FY24. The company has renewed a total of 12 MHz of spectrum in the 1800 MHz and 900 MHz bands in two circles for a spending of Rs. 1500 crore.

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Financials Of Vodafone Idea

FY23FY22FY21FY20FY19
Revenue (in Cr)₹42,177₹38,515₹41,952₹44,957₹37,092
Net Profit (in Cr)-₹29,301-₹28,245-₹44,233-₹73,878-₹14,603
Operating Profit Margin (%)40.2642.26-6.76-48.7115.09
Net Profit Margin (%)-68.96-73.09-105-160.62-38.61
EPS-8.43-9.83-15.4-27.25-17.17

As we come to the financial parts of Vodafone Idea Limited, the revenue increased from ₹38,515 Cr in FY22 to ₹42,177 Cr in FY23, growing by 9.51%. Vodafone Idea has had a revenue growth rate with a CAGR of 3.26% over the past 4 years.

The net loss of the VIL has increased from ₹28,245 in FY22 to ₹29,301 in FY23. Because of the increased expense of 12.82% such as manufacturing costs, employee costs and other costs of the company.

Operating profit margin and net profit margin are 40.26% and -68.96% respectively and it has had a negative profit margin for the past 5 years because the operating profit is affected by the expenditure of the company.  

The EPS is negative because the company is not making a net profit. In FY23, EPS will be -8.43%. The debt-to-equity ratio has been negative(-1.99) in FY24. It indicates that the company’s liabilities will be more than the assets of the company. ROE will be 0% and ROCE will be -4.12%.

Increase the Tariff Rate

The Telecom sector is planning to hike the tariff rate by 15 to 20% after the post-election result. It will be expected to benefit the company by contributing to a significant increase in Average revenue per user (ARPU) and increase the revenue of the company. It will also improve the upgradation of 4G and upgrade of higher data plans and postpaid services. This will help Vodafone Idea Limited to cover from net loss to net profit in upcoming years.

Future Plans /Advantages of the Merge

  • Vodafone Idea plans to invest in Pan India’s 4G population coverage of future capex, which is expected to range from 500 to 550 billion over the next 3 years. 
  • Vodafone Idea will be utilising capex in the expansion of 4G converge, and rollout of 5G and some capex are used for enterprise business.
  • VIL has raised 180 billion through FPO in FY24. It has been one of the largest in India and subscribed 7 times.
  • VIL is improving the average annual per user will be increased from Rs.142 in Q2 to Rs.145 in Q3 FY24.
  • VIL has constant growth in the 4G subscribers from 125 million to 126 million in Q3 FY24.
  • The company’s internal cash generation is largely used for clearing vendor dues and existing debt.
  • Vodafone Idea has promoted the VI App for gaming, integrated users to pay bills, shopping, food, travel and entertainment.
  • The company is focused on network investments to drive coverage and capacity expansion and focus on business services through Telco to techno transformation.
  • VIL helps to improve market initiatives to drive ARPU improvement & customer retention and strategic collaborations to monetize digital opportunities.
  • It has been supported by the digitalization of distribution and the digitalization of customer servicing to improve services.

Financial Metrics Of Vodafone Idea

The key metrics of Vodafone Idea are given below.

ParticularsAmountParticularsAmount
CMP16Market Cap (Cr.)1,05,376
Current ratio0.34ROA (TTM)16.89%
ROE (TTM)29.99%ROCE (TTM)3.15%
Promoter Holding (%)48.91%FII Holding (%)1.98%
Debt to Equity (TTM)2.34Price to Book Value46.04
Operating Profit Margin40.26%Net Profit Margin-68.96%

Conclusion

In conclusion part, Vodafone Idea is one of the largest telecom operators in India and the company is planning to invest capital expenditure for the expansion of 4G and rolling out of the 5G services. VIL also planning to improve the 4G usage to reduce the loss of subscribers because of the dominance of competitors in the telecom sectors.

The company believes that investment is back and competition in the industry and the company’s future plans include improving services and increasing its market share, making it a key player in the Indian telecom sector.

Written by Nikhil Naik

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