VIL-Annual-Report_2018-19.pdf - CMYK CMYK VODAFONE IDEA LIMITED Thomson Press www.vodafoneidea.com ANNUAL REPORT 2018 2019 Vodafone Idea

VIL-Annual-Report_2018-19.pdf - CMYK CMYK VODAFONE IDEA...

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Unformatted text preview: CMYK CMYK VODAFONE IDEA LIMITED Thomson Press ANNUAL REPORT 2018 - 2019 Vodafone Idea Limited (formerly Idea Cellular Limited) Suman Tower, Plot No. 18, Sector - 11, Gandhinagar - 382 011, Gujarat The Chairman’s Letter to Shareholders Dear Shareholder, Global Economy: The global economy recorded a healthy growth of 3.6% in 2018. During the second half of the year, however, the global economy lost some momentum, mainly on account of the increased trade frictions between the US and China, and the tightening of financial conditions. International Monetary Fund (IMF) expects growth to decelerate to 3.3% in 2019 and its projections suggest that all three major engines of the global economy, viz. US, China and Euro area are likely to decelerate in 2019. On the positive side, however, IMF expects world economic output to recover and grow at 3.6% in 2020. Of late, there have been a few growth-supportive factors such as the announcement of economic stimulus in China and halt to the process of monetary policy tightening in developed countries. But the business sentiment has become somewhat clouded with challenges arising from the Macroeconomic apparent setback to the US-China trade talks, the spread of trade frictions to technology sectors and the increased stability indicators intermingling of economic policies. These challenges signal broadly maintained that global commodity prices could be under pressure. their health. Low Indian Economy: inflation has created Indian economy exhibited mixed record in the just the space for monetary concluded fiscal. GDP growth slowed from 7.2% in FY18 policy easing, which to 6.8% in FY19. Sub-par rainfall in 2018, tight financial will also help support growth revival. conditions faced by the non-banking financial sector and moderation of external demand were the key challenges faced by the economy. Consumption growth declined during the second half of the year, but there were some signs of revival in the investment cycle, as the rate of gross fixed capital formation improved from 31.4% of GDP in FY18 to 32.3% in FY19. Macroeconomic stability indicators broadly maintained their health. Low inflation has created the space for monetary policy easing, which will also help support growth revival. The fiscal deficit target for FY19 was adhered to, despite a shortfall in tax revenues. While the current account deficit was high at 2.6% of GDP during the first three quarters of FY19, the softness in international oil prices portends its narrowing in the coming quarters. Following the resounding political mandate for the ruling Government, expectations of further economic reforms and impetus to large infrastructure investments have been reinforced. These are reflected in strong inflows in the capital market, taking equity indices to record levels in the weeks following the general elections. India’s medium-term growth prospects continue to be robust. Significant reforms undertaken in the recent years such as GST and insolvency code would raise India’s growth potential in the coming years, amplifying the effect of the long-term structural cornerstones of the Indian growth story such as demography and urbanization. In the near-term, however, uncertainty over the forthcoming monsoon season and the heightened global risks present headwinds for FY20. Accordingly, the outlook for the Indian economy in FY20 is one of cautious optimism at this juncture. Your Company’s Performance Effective August 31, 2018, Vodafone India Ltd. merged with your company leading to the creation of Vodafone Idea Limited, a partnership between two strong promoters Aditya Birla Group and Vodafone Group. Your Company is now one of India’s leading telecommunications company offering voice, data, enterprise services and several other value added services Your Company is now (“VAS”), including short messaging services, digital one of India’s leading services, content, and enterprise solutions. Your Company telecommunications not only has the highest subscriber market share of 33.7% with 333.6 million active subscribers as of May 31, 2019, company offering it is also the market leader in the growing enterprise voice, data, enterprise segment services such as IoT. services and several The Indian telecom operators continue to operate in other value added tough market conditions as competitive pressures forced services (“VAS”), operators to offer pricing plans, which are the cheapest including short in the world. This, coupled with massive investment requirements for expansion of broadband coverage and messaging services, capacity has significantly worsened the existing financial digital services, stress in the Indian telecom sector overall and further content, and undermined the position of all operators. Hence, pricing enterprise solutions. revival is now imperative for the long term sector health. Your Company has While the operating challenges remain, the consolidation in the industry has resulted in the creation of three large also successfully private and one public sector operator who are poised closed, India’s largest to benefit from the long term sector opportunities rights issue offering with rising broadband penetration and ever-increasing of Rs. 25,000 crores with strong demand data demand. Your Company with its largest spectrum portfolio, a nationwide network of sites and optical fiber, wide distribution reach and strong customer affinity for its from existing and two brands - Vodafone and Idea, is very well positioned new shareholders. to be successful in this new, consolidated marketplace. Your company is focused on accelerated integration of erstwhile entities with a very clearly defined strategy, having no dependencies on external factors. The outcome of exhaustive planning is a well-defined five-pillar strategy – (i) accelerated execution integration (ii) prioritizing investment in profitable areas, (iii) driving ARPU up with simplification and upselling, (iv) focus on partnerships to drive value and (v) strengthening the balance sheet. This forms the blueprint basis which several strategic initiatives have been undertaken to improve revenue, profitability and competitive position in the marketplace. Within just seven months of the merger, your Company has already achieved several milestones, well ahead of the expected timeline and is on track to deliver the guided synergies envisaged at the time of the merger. Your Company has also successfully closed, India’s largest rights issue offering of Rs. 25,000 crores with strong demand from existing and new shareholders. Outlook With industry consolidation now over, we believe that all existing operators are well placed to benefit from the several opportunities ahead. Customer needs continue to evolve with higher demand and consumption of both voice and data. India’s young population is spearheading this growth via increasing social media usage and consumption of content, through both video and audio apps. Further, rural penetration is still at a relatively low level of 57.1%, indicating nearly 300-400 million Indians are yet to adopt mobile services and join the ongoing digital revolution. In the enterprise domain, the rapid adoption of newage technologies – IoT, Cloud, Artificial Intelligence etc. are opening a new world of opportunities for telecom operators. Likewise, the Government’s thrust on Digitalization via strategic programs such as Digital India, Smart City and Bharat Net require robust nationwide broadband connectivity for seamless delivery and execution, enhancing prospects of the telecom sector overall. Your Company continues to focus Your Company continues to focus on diligent execution of its stated strategy to optimize the opportunities on diligent execution ahead. With its strong spectrum portfolio, nationwide of its stated strategy network footprint, aggressive broadband investments to optimize the and complementary brands – Vodafone and Idea, your opportunities ahead. company is well placed to benefit from these trends. Yours sincerely, Kumar Mangalam Birla Contents 2 Board of Directors 3 Corporate Information 7 Directors’ Report 51 Management Discussion and Analysis Report 69 Corporate Governance Report 94 Business Responsibility Report Standalone Financial Statements 113 Independent Auditor’s Report 126 Balance Sheet 128 Statement of Profit and Loss 129 Statement of Changes in Equity 131 Statement of Cash Flows 134 Notes forming part of the Financial Statements Consolidated Financial Statements 193 Independent Auditor’s Report on Consolidated Financial Statements 200 Consolidated Balance Sheet 202 Consolidated Statement of Profit and Loss 203 Consolidated Statement of Changes in Equity 205 Statement of Consolidated Cash Flows 208 Notes forming part of the Consolidated Financial Statements 1 Board of Directors Mr. Kumar Mangalam Birla Non-Executive Chairman 2 Mr. Arun Adhikari Independent Director (w.e.f. August 31, 2018) Mr. Arun Thiagarajan Independent Director Mr. Ashwani Windlass Independent Director (w.e.f. August 31, 2018) Mr. D. Bhattacharya Non-Executive Director (w.e.f. August 31, 2018) Mr. Himanshu Kapania Non-Executive Director (Managing Director upto August 31, 2018) Mr. Krishnan Ramachandran Independent Director (w.e.f. December 27, 2018) Ms. Neena Gupta Independent Director (w.e.f. September 17, 2018) Mr. Ravinder Takkar Non-Executive Director (w.e.f. August 31, 2018) Mr. Suresh Vaswani Independent Director (w.e.f. February 8, 2019) Mr. Thomas Reisten Non-Executive Director (w.e.f. August 31, 2018) Mr. Vivek Badrinath Non-Executive Director (w.e.f. August 31, 2018) Corporate Information Chief Executive Officer Mr. Balesh Sharma Chief Financial Officer Mr. Akshaya Moondra (w.e.f. August 31, 2018) Company Secretary Mr. Pankaj Kapdeo Statutory Auditors S.R. Batliboi & Associates LLP Chartered Accountants, 12th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai - 400 028 Cost Auditors Sanjay Gupta & Associates Cost Accountants Secretarial Auditors Umesh Ved & Associates Company Secretaries 304, Shoppers Plaza V, Opp. Municipal Market, C.G. Road, Navrangpura, Ahmedabad - 380 009 Registrar and Share Transfer Agents Bigshare Services Pvt. Ltd. 1st Floor, Bharat Tin Works Building, Opp. Vasant Oasis, Makwana Road, Marol, Andheri (East), Mumbai - 400 059 Debenture Trustee IDBI Trusteeship Services Ltd. Asian Building, Ground Floor, 17, R. Kamani Marg, Ballard Estate, Mumbai - 400 001 Corporate Office Birla Centurion, 10th Floor, Century Mills Compound, Pandurang Budhkar Marg, Worli, Mumbai - 400 030 Catalyst Trusteeship Limited 83 - 87, 8th Floor, ‘B’ Wing, Mittal Tower, Nariman Point, Mumbai - 400021 Registered Office Suman Tower, Plot No. 18, Sector - 11, Gandhinagar - 382 011 Gujarat Corporate Identity Number (CIN) L32100GJ1996PLC030976 Website C-4E/135, Janakpuri New Delhi - 110 058 3 Directors’ Report Directors’ Report Dear Shareholders, We have pleasure in presenting the Twenty Fourth Annual Report, together with the audited financial statements of the Company for the Financial Year ended March 31, 2019. Company Overview: The merger of Vodafone India Limited and Vodafone Mobile Services Limited into your Company effective from August 31, 2018, has led to creation of Vodafone Idea Limited, a partnership between two strong promoters Aditya Birla Group and Vodafone Group. Post-merger, your Company is a leading telecommunications operator in India offering voice, data, enterprise services and other value added services (“VAS”), including short messaging services, digital services, content, IoT and enterprise solutions etc. As of March 31, 2019, the subscriber base of your Company stands at 368.3 Mn (on VLR), with subscriber market share of 36.0%, which is highest in the Industry. The Revenue Market Share (RMS) on Gross Revenue basis (GR) for your Company stands at 32.8% (excluding BSNL/ MTNL wireline) for the quarter ended March 2019. Your Company provides Voice and Data services on 2G, 3G and 4G technologies across all 22 service areas and has strong spectrum portfolio and network footprint to support the burgeoning demand for both, data and voice. Your Company has the largest spectrum holding amongst all Indian telecom operators comprising 1,849.6 MHz spectrum across 22 circles, of which 1,714.8 MHz is liberalised spectrum which can be used towards deployment of any technology. Your Company’s mobile telecommunication services cover approximately 1 billion Indians. As of March 31, 2019, your Company has around 372,000 broadband (3G+4G) sites and all of the 4G sites are VoLTE enabled, creating a better customer experience. The broadband network is spread over 273,000 towns and villages and covers approximately 69% of the Indian population, while 4G networks covers approximately 65% of Indian population. Your Company has a portfolio of ~345,000 km of Optical Fiber Cable (OFC), including own built and Indefeasible Right of Use (IRU) OFC. Your Company has started deployment of latest technology of Dynamic Spectrum Re-farming (DSR), Massive MIMO and Small cells to maximize spectrum efficiency. Additionally, your Company has started deploying LTE on TDD in 2300 MHz and 2500 MHz spectrum bands to expand the capacity and on 900 MHz band on select sites to improve customer experience in dense areas. Your Company also derives revenue from carrying India inbound ILD traffic through arrangements with other mobile telecommunications companies and long distance carriers operating outside India. All of your Company’s services and products are currently offered under and brands. Both the brands are complementary in nature and have generated strong customer affinity throughout the years. The strength of brands and advertising is reflected in several brand recognition awards that your Company has won. Idea was listed among the top three brands in the Telecom category in AFAQS! India’s Buzziest Brands of 2018. Vodafone India won two silver and three bronze awards in EFFIES 2018 and won the Emvies Media client of the year 2018. Your Company’s vision is to ‘Create world class digital experiences to connect and inspire every Indian to build a better tomorrow’. To achieve this end, your Company is developing world-class infrastructure to introduce newer and smarter technologies, making both retail and enterprise customers future ready with innovative offerings, conveniently accessible through an ecosystem of digital channels as well as extensive on-ground presence. Financial Results The financial statements of the Company have been prepared in accordance with the Indian Accounting Standards (Ind AS) notified under section 133 of the Companies Act, 2013 read with Companies (Accounts) Rules, 2014. The standalone and consolidated financial highlights of your Company for the Financial Year ended March 31, 2019 which are not comparable with the figures for the previous financial year due to the merger of Vodafone Mobile Services Limited and Vodafone India Limited during this financial year, as mentioned subsequently in this report, are summarized as follows: (in ` Mn) Particulars Standalone Consolidated 2018-19 2017-18 2018-19 2017-18 Income from Services 367,668 278,000 370,056 282,471 Other Operating Income 920 286 869 318 Other Income 10,733 6,065 7,311 3,530 Total Revenue 379,321 284,351 378,236 286,319 Operating Expenses 329,799 221,843 330,495 222,314 49,522 62,508 47,741 64,005 EBITDA Annual Report 2018-19    7 Directors’ Report Particulars Standalone Consolidated 2018-19 2017-18 2018-19 2017-18 Depreciation and Amortisation 144,098 83,148 145,356 84,091 EBIT (94,576) (20,640) (97,615) (20,086) 94,713 48,968 94,628 48,130 (69,608) (192,243) (68,216) Interest and Finance charges EBT (189,289) Exceptional Items (Net) 12,367 - 8,521 - Share of JV/Associates - - 1,968 3,224 (36,362) (25,025) (35,715) (23,310) (44,583) (146,039) (41,682) Taxes Profit / (Loss) after Tax (140,560) Other Comprehensive Income, net of tax (3,198) Total Comprehensive (143,758) Income (4,517) 328 283 (49,100) (145,711) (41,399) The results for the current financial year include the results of the erstwhile Vodafone Mobile Services Limited (VMSL) and Vodafone India Limited (VInL) which merged into the Company effective August 31, 2018 for the period subsequent to that date till the end of the financial year (Refer Note 3 to the Standalone Financial Statements for further details). Accordingly, the figures for the current financial year ended March 31, 2019 are not comparable with the figures of the previous financial year ending March 31, 2018. Standalone revenue of your Company stood at ` 368,588 Mn, an increase in annual revenue for this year by 32.5%. The EBITDA fell to ` 49,522 Mn, registering a decline of 20.77% over the previous year. The Net Loss of the Company for the Financial Year March 31, 2019 stood at ` 143,758 Mn, for Financial Year 2018-19 vis-à-vis ` 49,100 Mn, for the previous year. On a consolidated basis, the total revenues stood at ` 378,236 Mn, an increase of 32.1% over the previous year. The EBITDA at ` 47,741 Mn reflects decrease of 25.41% as compared to the previous year. The consolidated Net Loss stood at ` 145,711 Mn, for Financial Year 2018-19 vis-à-vis ` 41,399 Mn for the previous year. Operations Review The Indian wireless industry has continued to remain under significant pressure with unrelenting pricing pressure since launch of services by the new 4G mobile operator in September 2016. All the operators are forced to sell at heavily discounted tariffs, in order to ring-fence their existing 8    Vodafone Idea Limited (formerly Idea Cellular Limited) customers, which has led to significant ARPU erosion. As a result the Gross Revenue (GR) for FY19 has declined by nearly ` 304 Bn in last two years, a fall of 16.0% compared to FY17, inspite of increase in active subscribers. While the operating environment continues to remain challenging, the industry has now consolidated into three large private players, i.e. Vodafone Idea, Bharti and Jio, and one government operator, i.e. BSNL/ MTNL, with all operators committed to support the growing data demand. With unlimited offerings getting more traction, the subscribers are migrating their usage to single SIM. Additionally, the launch of ‘service validity vouchers’ by Vodafone Idea and Bharti Airtel which requires customers to make a minimum recharge of ` 35 (28 days validity) to continue to use the network, led to further consolidation of subscribers in the second half of FY19. Industry VLR subscriber base stands increased to 1,022 Mn as of March 31, 2019 compared to 998 Mn as of March 31, 2018, of which the top three operators comprise of more than 93%. During FY19, industry broadband penetration continued to improve supported by heavily discounted data prices, increasing affordability of smartphones and rising income levels. Wireless broadband subscriber are now 545 Mn (broadband penetration ~47%) as of March 31, 2019 compared to 395 Mn (broadband penetration ~33%) a year ago. Following the merger of VInL and VMSL into your Company, the challenging phase of integration is underway with a very clearly defined strategy, having no dependencies on external factors. Through meticulous planning, your Company has created a blueprint to improve revenue, profitability and competitive position in the marketplace. The outcome of this exhaustive planning is the following well-defined five-pillar strategy which forms the basis for all the ongoing strategic initiatives. 1. Accelerate Integration – Your Company is focused on rapidly integrating operations to derive operational synergies and reduce expenditure. Your Company is progressing well ahead of plan and intends to deliver synergies by FY21, two years earlier than previously stated target. Your Company has already consolidated spectrum and radio access network in 10 out of the 22 service areas. On operational integration, your Company has completed consolidation of a...
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