Vodafone-Idea Group has re-branded as ‘Vi’ as it looks for a fresh start. The company announced the move after the Supreme Court gave its verdict on the AGR dues case (Read More Here). In the verdict, the apex court gave Vodafone-Idea Ltd, a period of 10 years to clear its pending dues of Rs 54,754 crore.

Many of us still don’t the amazing journey of the brand where it moved from Max Touch to Orange to Hutch to Vodafone to Vodafone Idea and finally now to Vi. So come let’s learn about this journey, both from the perpectives of Vodafone and of Idea.

What is now Vodafone-Idea Ltd is actually a result of a mixture of Mergers and Acquisitions. From Max Touch to Orange to Hutch to Vodafone Idea to Vi. The Indian economy became an easier playing ground for private sector telecom companies in the early 1990’s. Both today’s Idea and today’s Vodafone were early movers in the field.

The Journey of Vodafone

Vodafone India didn’t just start out as Vodafone. At first, it was Hutchison Max Telecom Ltd (HMTL), a joint venture between Hong Kong based Hutchison Whampoa and India’s Max Group. The company was established in 1992 and commercially called Max Touch.

In the year 2000, the company was rebranded to Orange.

In 2005-06, Max group sold its entire 41% stake to Hutchison, and exited the partnership. Meanwhile Essar Group entered as a strategic partner in the equation.

BPL, another telecom player, was merged with Hutchison Essar in 2004. Furthermore, the company rebranded itself from ‘Orange’ to ‘Hutch’ in 2005, after facing an issue with international copyrights.

Thereafter, it also targeted business users and high-end post-paid customers which helped Hutch to consistently generate a higher Average Revenue Per User (ARPU) than its competitors. By adopting this focused growth plan, it was able to establish leading positions in India’s largest markets providing the resources to expand its footprint nationwide. 

Vodafone, which was a leading telecom operator in UK entered the Indian market and acquired the entire 67% stake of Hutchison in February 2007. The company was soon rebranded to Vodafone India. Vodafone later went on to buying out the entire company from other promoters Essar Group and Li Ka Shing Holdings in 2011.

The Journey of Idea

In another side of the story, Aditya Birla Group’s Idea was slowly building up their business as well. Idea Cellular began as Birla Communications Limited in 1995 after GSM licenses were won in Gujarat and Maharashtra circles.

As part of their expansion plans, American telecom giant AT&T was roped in as a strategic partner by Birla in 1996. In 1997, in order to expand into more geographical areas, a tie-up with Tata Communications led by Ratan Tata was also formed. The merged entity was known as Birla AT&T and Tata Communications Ltd, commonly known as BATATA.

The company name was changed to Idea Cellular in 2002 after a series of changes following mergers and joint ventures. In 2004, AT&T exited the partnership to concentrate on their US operations. In 2006, Tata Group exited the partnership as well as they wanted to launch their own telecom brand, which later failed anyway. So after all the partnerships ended, the Birla Group led the company alone until the eventual merger with Vodafone in 2018.

We hope you remember the popular telecom operator Escotel (fun fact : They were the first telecom operator to start operations in Kerala in 1996). Interestingly, Escotel was merged with Idea in 2004 (Another fun fact : Escotel was the disastrous telecom wing of Tractor manufacturer Escorts Ltd).

Four days later after Vodafone entered the country in 2007, Idea Cellular launched its IPO and raised ₹2,125 crores. The IPO was oversubscribed by 57 times. It is interesting to note that the paths of Vodafone and Idea have crossed many times like two soulmates, and ultimately ending up in their merger.

The Merger

The first merger between Vodafone and Idea was approved by The National Company Law Tribunal (NCLT) on 30th August 2018. As per the scheme of the arrangement, Vodafone India and Idea would merge to form a single listed entity. However, both continued to operate two separate brands until September 2020.

Share Holding Pattern of Vodafone Idea Ltd

With Jio entering the Indian telecom sector in 2016, current players in the industry were put in a very tough spot. Mukesh Ambani’s Reliance came into the scene with deep pockets and huge offers. The sudden drop in voice and data tariffs were not tolerable to players like Vodafone and Idea, who were running a highly leveraged business (high debt). Many telecom operators were forced to shut shop, or merge to sustain in the market, including Tata Docomo’s merger with Airtel and the Vodafone-Idea merger.

Hope you all know about the recent AGR case, which has become a huge headache for telecom operators in India. Read more about it here, if you haven’t already. In the recent verdict to the case, The Supreme Court of India has given a period of 10 Years for Vodafone-Idea to pay Rs 54,754 crore, in pending AGR dues.

The Future

On 7th September, Vodafone and Idea rebranded and completely merged into a single brand ‘Vi’. The rebranding was a welcomed move as it came right after the the company’s Annual General Meeting where fundraising prospects were discussed. The share price rose 3% the day the rebranding was announced.

The merged entity is looking to raise Rs 10,000 crore via the sale of its fibre and data centre business, and another Rs 25,000 crore through debt and equity.

The rebranding of Vodafone-Idea along with its fundraising initiative has unlocked many possibilities. Vi is also exploring possibilities of the future 5G spectrum where Jio stands as a tough competition, with its homegrown 5G hardware.

Vodafone-Idea still has long term borrowings worth Rs 1,05,388 crore. It has a cash reserve of Rs 525 crores. Looking at results for Q1FY21, the company can meet its short term obligations, however, it needs to focus on enhancing its cash flow. It cannot afford to finance itself on debt. A cautious investor should watch out for Q2 results, which is likely to tell us how the company has restructured its finances.

Whether or not VI gains traction depends on how it manages to gain back its lost faith by customers and investors. They are currently forced to concentrate on both gaining lost customers and paying their AGR dues. As an investor, one needs to watch out for every single move made by the management of the company. Certainly, the company is too big to fail, with its high levels of debts from leading banks in the country. With the upcoming 5G spectrum sale, the government will want more than just Airtel and Jio to get a healthy bid value. The economy will not be able to handle the fall of this titan.