Vodafone Idea kicks off cost optimization plan 2.0

Key performance indicators of Vodafone Idea for the last 15 months

Having reached the cost-saving target of its merger one year ahead of schedule, Vodafone Idea said it has now kicked off another cost-reduction plan.

PLAN 1.0

The company said it reduced its operating expenses during the January-March period by around Rs 2,100 cr compared to before the merger, which works out to savings of Rs 8,400 cr for a 12-month period.

At the time of consummating the merger of Idea Cellular with Vodafone Idea two years ago, the company had set a target of reducing the combined operating expenses of the two companies by 8,400 cr per year by March 2021.

However, hit by a sharp deterioration in its profitability — compounded by an unexpectedly harsh judgment by the Supreme Court — Vodafone Idea has had to cut its cost aggressively over the last 12-15 months.

At the time of the merger, the companies had identified 73,000 locations (cell sites) where both Vodafone and Idea had their equipment, and could afford to remove one set and save money. As of March end, said the company, 64,000 (88%) of such duplicate sites have been removed.

Similary, in 92% of the districts, it said, it had merged Idea and Vodafone cellular networks into one. Work in this regard is continuing in four circles — Maharashtra & Goa, Mumbai, Kerala and Tamil Nadu, it added.

“Due to the continuation of nationwide lockdown, the remaining consolidation is expected to take longer than initially expected,” it added.


However, the company is no condition to take a breather, and said it has no plans to go easy on its optimization drive.

In addition to removing excess towers from areas and merging the networks where both networks are still present, it has now decided to shut down its 3G service and take down its 3G masts.

“During the year, the Company has revised its business plan, basis which the company is in the process of re-farming its 3G spectrum for 4G services along with its Network integration / alignment. Consequently, certain assets capitalised earlier may no longer be usable,” the company said.

Further details of what else will be included in the second optimization exercise will be revealed soon, it said.

“Post completion of de-duplication exercise for synergy realization, we have initiated a further cost optimization plan across the company in line with the evolving industry structure and business model to achieve next level of efficiency, details of which will be shared in due course,” it said.

On the minus side, the company said because of the losses that it has been suffering — partly because of market forces and partly because of an October 2019 judgment by a Supreme Court bench headed by J Arun Mishra — it now finds itself in violation of certain conditions and covenants with some of its lenders.

“As at 31st March, 2020, the company has classified Rs 142,757 Mn (includes Rs 95,972 Mn reclassified as at 31st March, 2019) from non-current borrowings to current maturities of long-term debt for not meeting certain covenant clauses under the financial agreements for specified financial ratios as at 31st March, 2020. The Company had exchanged correspondences or been in discussions with these lenders for the next steps/waivers,” it said.

“During the year, the credit rating of certain borrowings have been revised to BB-. As a result, certain lenders have asked for increase of interest rates, for which the Company is in discussion with such lenders. Further, guarantees amounting to Rs 128,448 Mn are due to expire during the next twelve months,” it added.

“The above factors indicate that material uncertainty exists that cast significant doubt on the Company’s ability to continue as a going concern and its ability to generate the cash flow that it needs to settle/refinance its liabilities and guarantees as they fall due. The Company’s ability to continue as a going concern is essentially dependent on a positive outcome of the application before the Hon’ble Supreme Court for the payment in installments and successful negotiations with lenders,” it added.

Nevertheless, the company’s shares have seen their prices almost quadruple from around Rs 3 on April 1 to Rs 11 on Jun 29. They are currently trading at Rs 9.60.