I don’t think Binani would have been resolved if it wasn’t for IBC. It’s a very brave reform by the Modi govt. You must give them credit
Kumar Mangalam Birla, chairman of the Aditya Birla Group, spoke to ET on issues ranging from how Vodafone Idea is tackling competition to the Insolvency and Bankruptcy Code (IBC) and his views on the next government.
Edited excerpts:

How do you see Vodafone Idea in a tough market after Jio unleashed a tariff war?

The industry is in a tough situation, but what is Vodafone Idea doing to combat the situation is more important. We know that the number of telecom operators have shrunk from 8-10 to three … therefore it has changed the dynamics in a way. But, having said that, we have created scale and size. There are 387 million subscribers (and) 40% of India’s mobile voice traffic. Having said that, the promoters have invested Rs 2,57,000 crore and so it’s not an entity to be scoffed at. Will it withstand Reliance Jio is a different question, but the fact that it is underinvested is not true, because together the investment has been substantial.

How is the merged entity shaping up?

In one quarter of its market, the two networks have been hooked up — which means the consumer gets more penetration more coverage and you’re bringing both networks together so that the consumer experience goes up. And that’s done in Bangalore, Karnataka (and) all of Madhya Pradesh, which is fairly quick considering the consolidation has just happened. At this scale, nothing like this has been executed anywhere in the world. In the next 12-18 months, both networks will be hooked up completely and that’s addressing the basic question of consumer experience, which has taken a huge beating for all operators in the last few months and is likely to get only worse.

Are synergies of the merger showing?

We had talked about synergy targets of $10 billion in NPV (net present value) terms and this quarter results already indicate Rs 3,500-crore annualised savings, which to my mind, given that it has just been three months, is huge. They are also saying there will be Rs 8,500 crore of savings rate in the third year of the merger, which is substantial. Bringing down the cost is obviously a very important part of the equation and that’s what is going to essentially push up your operating profit.

I hadn’t thought that the combined entity would become so productive so early, so I don’t hear any Idea vs Vodafone now in the last two months. It happened for the first two months but died down very quickly.

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How are you responding to tariff war?

Vodafone Idea has also now come up with some schemes that are looking at a minimum commitment plan. They are saying we want to weed out the non-paying or very lowpaying subscribers, which would release capacity to some extent but, more importantly, take ARPU (average revenue per subscriber) up, because in that base of non-paying or very low-paying — which is less than ?25 kind of customer — there has been a lot of churn … it’s the people that they wanted to churn out that have left the network — 35 million is the right kind of people who have left.

How about beefing up finance?

We are talking about a Rs 25,000-crore rights issue out of which Rs 18,500 crore comes from promoters and the balance by way of rights. At the current price level, that seems doable. Will it happen very easily? Obviously not. But there is an ongoing effort to ensure the rights issue goes through. We are also selling non-core assets, whether it is towers or optic fibre and that cash flow will come through.

There are some concerns about group companies and investors subscribing to the rights issue…

Vodafone is completely committed. I think the view is that Grasim should not dilute its holding (in Vodafone Idea) at this point in time because prices are attractive, there is a definite plan in place and why should Grasim as a promoter, having been invested for more than 25 years at these price, dilute its holding. Plus, there is the affordability issue as well. We don’t see as promoter, and also Grasim as a board and its independent directors, the rationale for not subscribing at this point in time: it doesn’t seem the right thing to do. There has been a very transparent communication about this with investors and, second, I don’t think investors seem to have a problem.

Will the money be enough?

We believe it is good enough for the next three to four years. No one raises funds that will last for the rest of your life. But if you have enough funding for the next three years, it is good enough for the current situation. So, you are not a pushover.

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Will Vodafone Idea be restricted to pure mobility play?

Our play is much more restricted as compared to Jio. We are not getting into content, we are not buying content providers, we are not getting into direct-to-home. When you look at investments, you can’t really compare like-to-like since our’s is much more pure mobility play. The stock did well after the last quarter results and will only get better. But if you ask me how you will compete with Jio, do you have as much cash flow, obviously not. We have a high level of confidence from the point of view of operations, quality of network, customer experience, costs.

When do you expect tariffs to rise?

I can’t crystal ball. But I think we are on the right path. The strategy that Vodafone Idea is going to follow is to collaborate with other parts of the ecosystem as opposed to owning every part of the ecosystem. Therefore, capital requirements come down and it is much more pure mobility play. None of this will come without incremental investment and I am assuming that at some stage a return on investment is a criterion they (Jio) will look at. On tariffs, no one knows. All prediction has been proven wrong.

What can the government do for telecom?

I think there is a huge block up of cash that has come on account of GST for the telecom sector because there isn’t any way to offset it. What else can the government do but help ease that burden? That’s a very legitimate way of releasing cash for the industry. And I’m sure that’s the case for Jio also.

Is there a chance for another consolidation in the telecom sector?

I don’t think so. I think there are enough examples globally when there are three players in the market, they have survived it.

How was your experience of acquiring Binani Cement through the IBC process?

First, the IBC is a very deep reform. It is almost as deep a reform as GST or demonetisation. It changes the fundamental character of Indian business. I think a lot of promoters treated debt as equity and did not find the need to actually repay within a specified period. Obviously the banking system has gained tremendously.

At the time when we went through Binani, it (IBC) was all still very new, and there were lots of tweaks that were needed to be done but that is true of any important legislation as IBC. I don’t think a Binani would have been resolved if it wasn’t for IBC. So, that’s a very brave reform carried out by the Modi government. You must give them credit for it.

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Do you think some promoters are trying to game the system by constant appeals and counter appeals?

I think it’s a robust enough law. It can cause delays, but I don’t think the system can be gamed. That’s my clear sense.

Does it change the fundamental character in a good way?

It does. There is this fear of losing your assets if you are not keeping financial commitments which can only be good for the economy.

Will the market, economy or investment climate be affected if elections throw up a hung parliament?

I think the good thing is that structurally, the economy will grow at more than 7%. That is a sturdy situation to be in, irrespective of the kind of government that comes in. I don’t think any government is going to go back on the reforms process. There is no government that won’t attempt to get people to come and manufacture in India. Having said that, a coalition will have its own pulls and pressures and can never be the same as the situation today. I think the government has a role to play in taking that 7% (growth) to 9.5-10%. Therefore, the shape and composition of the government is important. We haven’t reached a point where politics and economics have been totally divorced from each other.

The threat of imports from FTA nations…

Most of them are one-sided … when make in India is such a large theme and creation of jobs has become a huge issue, why would you want to sign an FTA which hurts Indian industry?

Has dialogue with the government helped?

I think the government understands the need for doing away with FTAs. This government is very cautious in terms of being a very responsible global player, so they don’t want to take an action that is seen as being out of line in any way.

For example, I don’t think they want to be being adversarial to China in any way at all, which is perhaps an important part of the reason behind not protecting domestic industries from China. But it’s not about protecting, its providing a level playing field. So, the government’s general view is that it needs to be reviewed when it comes for revision and one hopes at that time an objective view will prevail.





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