India’s largest telecom operator aims to achieve benefits from the merger earlier than expected amid a tariff war triggered by Reliance Jio Infocomm Ltd.
Vodafone Idea Ltd., which cut the merger synergy timeline to two years from four, expects to achieve the bulk of these benefits from lower costs related to network and IT, subscriber acquisition and customer services.
While announcing the merger, the UK-based Vodafone Group and Aditya Birla Group-controlled company estimated annual savings of Rs 14,000 crore. Of this, 60 percent would be on account of operational synergies and the rest from capital expenditure.
Though analysts expect most of these synergies to be achievable, BloombergQuint’s calculations show that the net operational benefit would be significantly lower as erosion of earnings before interest, tax, depreciation and amortisation offsets all synergy gains targeted.
Vodafone India and Idea Cellular Ltd in August received the last regulatory approval required for the merger of the two entities. The two operators agreed to combine as they were losing ground in the world’s second-biggest telecom market disrupted by Mukesh Ambani-led telecom upstart’s cheap data. Since the announcement of the merger, more than 80 percent of their operating profit has been wiped off.
Vodafone Idea, which reported its first quarterly numbers after merger, suffered a net loss of about Rs 5,000 crore. The company is planning to raise around Rs 25,000 crore. It’s also looking to sell its stake in Indus Towers Ltd and monetise its fibre assets for deleveraging. Operational synergies, potential fundraising and stake sale in Indus Towers may help the company lower its leverage ratio, or net debt-to-Ebitda, to 6.3 times, according to BloombergQuint’s calculations.
UBS
Bank of America Merrill Lynch
Motilal Oswal
(This article was first published in BloombergQuint and has been republished here with due permission.)
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