Savings from Idea-Vodafone merger deal to cross $10 billion: Aditya Birla Group

Mumbai: Aditya Birla Group expects savings from the merger between group company Idea Cellular Ltd and Vodafone Group Plc’s India unit to be significantly more than the $10 billion it forecast in March last year, group chief financial officer Sushil Agarwal said in an interview.

The benefits accruing out of the Idea-Vodafone merger will increase on account of savings made by both Idea Cellular and Vodafone India Ltd because of synergies in capital and operating expenditure as the group now expects the merger to be completed much before the original deadline of September 2018.

The group also expects pricing pressure to moderate soon.

“Given the large synergies that we had announced, we had indicated that there would be $10 billion savings which will come and since the merger is likely to consummated ahead of what we had announced… as of now it looks like we will be ahead of the original time line…so that $10 billion will become a larger number. That’s a large sum for any company,” Agarwal said.

The Idea-Vodafone merger was earlier expected to be completed by the first half of calendar year 2018.

Both Vodafone and Idea have received approval from the National Company Law Tribunal (NCLT), the Competition Commission of India (CCI) and the Securities and Exchange Board of India (Sebi) and now await the final green light from the department of telecom (DoT) for the proposed merger.

Agarwal expects DoT approval to come soon. “Post merger, there is a lot of complementary positions that we have between us and Vodafone. There would be some opex (operating expenditure) saving. There would be some capex (capital expenditure) saving—depending upon which item you pick up. A few things will start getting reflected immediately,” he said.

That would be good news for Agarwal as well as the Mumbai-based conglomerate whose other companies such as Grasim Ltd have taken a hit on account of losses made by Idea Cellular Ltd.

For instance, Grasim factored in a loss of Rs359 crore in its December quarter earnings on Wednesday, following from its 28% stake in Idea and treating the company as its associate.

Idea Cellular’s loss tripled to Rs1,285 crore during the quarter ended 31 December from Rs384 crore in the year-ago period.

“Over a period of time, if you would have noticed, the prices have been improving from the new competitor also. Serious consolidation has taken place, which is the most important piece. Given the merger which is round the corner, … (we will) become the largest mobile company in the country. In this background, with the sector improving, I am sure all these numbers will be behind us,” Agarwal said.

To better compete with rivals, Vodafone India and Idea Cellular announced a merger in March.

Considered to be one of the most complex mergers in India, it will create the world’s second largest and India’s largest telecom operator, surpassing Bharti Airtel Ltd.

Since the Idea-Vodafone merger itself is the result of consolidation triggered by a price war started by Reliance Jio Infocomm Ltd, it is unlikely that the merged entity will be a price warrior itself.

It will focus on profitability and revenue.

“When you do business, you do it to make money. In that background, if everyone makes a normal commercial return, I think we will not see the pressure and stress that the sector is seeing today,” Agarwal added.

Post-consolidation, the industry is likely to turn healthier and more stable than it was a year ago. Still, challenges remain with the industry saddled with debt of around Rs4.5 trillion and Rs3 trillion in spectrum payment liabilities to the government.livemint