Vodafone Idea Ltd Management Discussions.

Indian Wireless Sector

The Indian wireless industry has continued to remain under significant launch of the new 4G mobile operator in September 2016. All the operators have been selling aggressive unlimited voice bundled data plans which are heavily discounted, in order to defend their subscriber base which has led to significant ARPU erosion. This has led to worsening financial for the operators and shrinking the overall revenue of the industry. The Gross Revenue (GR) for FY19 has declined by nearly Rs. 304 Bn in last two years, a fall of 16.0% compared to FY17. The below chart depicts the steep decline in industry revenue since FY17.

While the industry grappled with unsustainable ARPU and resultant revenue decline, the increasing demand for data continued to demand massive network investments. The stretched financial position has forced most of the operators to either exit or consolidate following which the industry has now consolidated among three large private Pan India operators i.e. Vodafone Idea, Bharti Airtel and Jio, and one government operator i.e. BSNL/MTNL, compared to 8 -10 subscriber loss of 179 Mn while operators earlier.

As the consolidation has progressed, the SIM consolidation has been underway for last few years. The launch of unlimited bundled plans further drove SIM consolidation as consumers who earlier used to split the usage on multiple SIMs are now trending towards committing their usage to a single SIM. Additionally, the introduction of ‘service validity vouchers’ in the second half of FY19, which requires customers to make a minimum recharge of Rs. 35 (28 days validity) to continue to use the network, forced the ‘incoming-only’ or ‘minimal ARPU’ customers on multiple networks to consolidate their spending from multiple to single SIM. While the introduction of service validity vouchers, as expected, led to decline in customers, ARPU and subsequently revenues have shown improvement.

Following chart depicts how industry has witnessed overall decline of 18.4 Mn subscribers between March 2017 and March 2018, on account of SIM consolidation where smaller operators saw a significant larger operators (Bharti, Vodafone, Idea and Jio) gained 160 Mn subscribers. During FY19, while VLR subscriber base increased by 23.7 Mn for the industry, the underlying trends have been different for different operators. Because of the consolidation, overall subscriber addition, except for one operator has been subdued. Further, both Bharti Airtel and Vodafone Idea have seen subscriber loss, specifically in the second half of the FY19 on account of the ‘service validity vouchers’.

While the operational challenges continue to remain, the consolidation of telecom industry presents several opportunities for surviving operators as and when prices revive to normal levels in line with costs. India’s young population, rapid urbanization and growing middle class ensure a growing subscriber base in the target demography. As of December 18, 2018, 93.6% of India’s population is estimated to be aged under 65 years, with 27.0% aged under 15 years (Source: CIA World Factbook Website). India’s young and rapidly urbanizing population is expected to drive economic growth and increase consumption.

The overall tele-density for India as of March 31, 2019 stood at 88.46% suggesting there is still a proportion of population who are yet to be brought in the fold of mobility. This holds true especially for rural areas where tele-density is still low at 57.13%, despite a massive expansion from 414 Mn in FY15 to 511 Mn in FY19, an addition of 97 Mn customers. We estimate there are still nearly 300-400 Mn Indians in the rural hinterland, who are yet to adopt mobile telephony services which provides a long term opportunity to the mobile operators.

During FY19, industry broadband coverage continued to improve and the 4G services being offered by all the operators are extremely affordable. This coupled with increasing affordability of smartphones and rising income levels have led to massive spurt in broadband users. As a result, India had an impressive growth in wireless broadband subscriber (>512 kbps), up from 84 Mn in March 2015 to 545 Mn in March 2019, an addition of 461 Mn subscribers and almost 1/3rd of these have been added during last one year. Despite such strong broadband subscriber addition, there is significant (as a percentage of overall subscriber base) to improve, as it still remains low at 46.9% as of March 2019 (Source: TRAI).

Due to lack of adequate infrastructure, the growth of wired internet has been restricted to major cities as a result of which wireless remains the preferred means of connecting to the internet. The mobile broadband users base is thus expected to grow further driven by continuous expansion of data network (4G LTE) by operators, India’s growing young urban population, increasing affordability of smart phones, growth in social media usage and the proliferation of relevant content. The telecommunication operators are thus transitioning from being a pure telecom service provider to an integrated digital service provider with digital applications offering entertainment, information, cloud and storage services.

Discussion on Vodafone Idea’s Operational Performance Mobile Business overview

Vodafone India has merged into your Company, Idea Cellular Limited (ICL) on August 31, 2018. Consequently, the name of your Company has been changed from ICL to Vodafone Idea Limited. Vodafone Idea Limited is an Aditya Birla Group and Vodafone Group partnership. Your Company now is a leading telecommunications operator in India offering voice, data, enterprise services and other value added services ("VAS"), including short messaging services and digital services. With its large spectrum portfolio to support the growing demand for data and voice, your Company is committed to deliver delightful customer experiences and contribute towards creating a truly ‘Digital India’ by enabling millions of citizens to connect and build a better tomorrow.

1. Voice Services:

Your Company offers voice services coverage in all 22 service areas on the Vodafone and Idea brands. The 2G coverage of your Company now spans across 470,000 towns and villages and provides coverage to more than a billion Indians with its voice services. The 2G coverage has increased to 90% of the population compared to 82% pre-merger. Your Company has also introduced 4G VoLTE across all 22 circles to provide enhanced voice experience to its 4G subscribers and for better capacity management.

2. Broadband Services:

Your Company provides broadband data services in all the 22 service areas of India across both the brands Vodafone and Idea. Your Company’s broadband coverage is available in over 273,000 towns and villages, covering 69.1% of the Indian population. The 4G population coverage stands at 65% as of March 31, 2019, compared to less than 50% coverage for each of the brands pre-merger. On 4G, your Company as of March 2019 provides incremental coverage to 281 Mn Indians for the Vodafone brand and 187 Mn Indians for the Idea brand since the merger. Your Company continues to focus on aggressive expansion of broadband networks.

The following table reflects the traction in key data metrics since merger:

Description Unit Q1FY19 Q2FY19 Q3FY19 Q4FY19
Total Data Subscribers (2G+3G+4G) Mn 141.7 140.1 146.3 146.3
Broadband Subscribers (3G+4G) Mn 95.3 99.7 107.9 110.2

 

Description Unit Q1FY19 Q2FY19 Q3FY19 Q4FY19
4G Subscribers Mn 57.4 65.8 75.3 80.7
Data Usage by Broadband Subscriber (3G+4G) MB 7,141 8,142 8,546 8,815
Total Data Mn 2,028,393 2,426,213 2,705,157 2,947,472
Volume (2G+3G+4G) MB

With pan India broadband presence, increased coverage following merger coupled with incremental rollout, your Company has seen steady rise in broadband subscriber penetration increasing from 21.9% in Q1FY19 to 33.0% in Q4FY19. Your Company continues to focus on aggressive broadband network expansion during next financial year with target to reach 80% population coverage by FY20 end. This should further strengthen the broadband subscriber penetration in the coming years.

Vodafone Idea’s Broadband Subscribers and Penetration

3. Content Services:

To provide ‘Best In Class’ content to its customers your Company has tied up with various content creators and aggregators like Eros, Sony, Zee, Sun, Shemaroo, Hoichoi, TV Today, Discovery and others. Both these apps provide a range of content including Movies, Live TV, TV shows, Originals and short videos. Additionally, your Company has tie ups with leading content providers like Amazon Prime and Netflix for its premium customers.

4. Other VAS Offerings:

Your Company offers a variety of other Value Added Services (VAS) offerings, including:

- Entertainment services such as sports (score updates), IVR based content, WAP based games;

- Voice and SMS based services such as ring back tones, voice and SMS chat, star talk, expert advice and subscriptions services; and

- Utility services such as missed call alerts, doctor on call and astrology services.

Long Distance Services and ISP

Your Company holds licenses for NLD, ILD, ISP and IP-1 services. Vodafone Idea NLD carries almost all of its captive NLD minutes. Your Company ILD services now handle almost 100% of captive ILD outgoing minutes, besides bringing incoming minutes traffic from top international carriers across the globe. Your Company also offers ISP services to external customers like small ISP and enterprise customers for their wholesale internet backhaul needs. Vodafone Idea ISP currently handles all captive subscriber traffic requirements.

Enterprise services

Your Company offers telecommunications solutions to global enterprises, corporates, public sector & government bodies, small & medium enterprises and start-ups. Your Company has a dedicated team of account and service managers to address the enterprise mobility, fixed line, Internet of Things ("IoT"), cloud and converged communications requirements of enterprise customers. Your Company is the market leader in enterprise mobility services and continues to focus on new revenue streams like IoT and cloud services. Vodafone Group SuperIoT is an industry-first solution that enables end-to-end management of device, application, connectivity, service platform, support and security. In addition, Vodafone Group is a leader in providing new age services such as IoT and cloud solutions and your Company expects to benefit from leveraging the relationship with them in providing such services to customers in India. With the advantage of its global expertise and knowledge of local markets, Vodafone Idea Business Services endeavors to be a trusted and valued partner for businesses in a digital world.

Payments Bank

Aditya Birla Idea Payment Bank Limited (ABIPBL) on April 03, 2017, received banking license from RBI. Payments Banking services were launched on February 22, 2018. However unanticipated developments in the business landscape of Payments Bank have made the economic model unviable, due to which the Board of ABIPBL has on July 19, 2019 approved voluntary winding up of ABIPBL.

Wallet Business

Pursuant to merger of Vodafone India Limited with your Company, Vodafone M-Pesa Limited (VMPL) having Prepaid Payment Instruments (PPI) business became subsidiary of your Company. As per the RBI guidelines, same promoter group cannot have Payments Banking business in one entity and Prepaid Payment Instruments (PPI) business in another entity. Based on various discussions, the Regulator had initially permitted these two entities to carry on the business until December 31, 2018 which was later extended to March 31, 2019. VMPL Board has subsequently approved surrender of PPI Authorisation and cease the wallet and Business Correspondent business.

Passive Infrastructure Services Own Towers

Besides investment in Indus Towers, your Company mainly through its 100% subsidiary Idea Cellular Infrastructure Services Limited (ICISL), held 10,021 towers and 17,534 tenancies at a tenancy ratio of 1.75, as of March 31, 2018. On November 13, 2017, your Company and Vodafone India, separately agreed to sell their respective standalone tower business in India to ATC Telecom Infrastructure Ltd (American Tower) for an aggregate enterprise value of Rs. 78.5 Bn (Rs. 40 Bn for Idea and Rs. 38.5 Bn for Vodafone). The ICISL transaction with American Towers was completed effective May 31, 2018.

Indus Towers

Indus Towers Ltd. (Indus), a joint venture between Bharti Infratel Ltd., Vodafone Group and Vodafone Idea Ltd, is one of the world’s leading tower company with 123,546 towers and a tenancy ratio of 1.86 as of March 31, 2019. Vodafone Idea owns 11.15% stake in Indus. The proportionate profit/ loss of Indus is presently consolidated at the PAT level in Vodafone Idea’s financial statements.

Competitive strengths

1. Competitive Spectrum Profile

Following merger of Vodafone India and Idea Cellular, your Company has the largest spectrum portfolio in

India comprising 1,849.6 MHz spectrum across 22 circles of which 1,714.8 MHz is liberalised and can be used towards deployment of any technology. Further, 1,316.8 MHz of spectrum acquired through auction between year 2014 and 2016, has validity until 2034 to 2036. This large spectrum portfolio across 22 circles will allow the Company to create enormous broadband capacity. Below table provides the spectrum held by your Company across all service areas:

Circle Administrative Spectrum Liberalised Spectrum
900 1800 900 1800 2100 2300 2500 Total FDDx2+TDD
Andhra Pradesh - 6.2 5.0 6.6 5.0 - 10.0 55.6
Assam - - - 25.0 5.0 - 20.0 80.0
Bihar - 4.4 - 13.4 5.0 - 10.0 55.6
Delhi - 8.0 10.0 10.6 5.0 - 20.0 87.2
Gujarat - - 11.0 20.8 10.0 - 30.0 113.6
Haryana - - 12.2 15.8 15.0 - 20.0 106.0
Himachal Pradesh - 4.4 - 11.2 5.0 - 10.0 51.2
Jammu & Kashmir - - - 17.0 5.0 - 10.0 54.0
Karnataka - 8.0 5.0 11.0 5.0 - - 58.0
Kerala - - 12.4 20.0 10.0 10.0 20.0 114.8
KoIkata - - 7.0 15.0 10.0 - 20.0 84.0
Madhya Pradesh - - 7.4 18.6 5.0 10.0 20.0 92.0
Maharashtra - - 14.0 12.4 15.0 10.0 30.0 122.8
Mumbai - 4.4 11.0 10.2 10.0 - 20.0 91.2
North East - - - 25.8 5.0 - 20.0 81.6
Orissa - - 5.0 17.0 5.0 - 20.0 74.0
Punjab - 6.2 5.6 15.0 10.0 - 10.0 83.6
Rajasthan - 6.2 6.4 10.0 15.0 - 20.0 95.2
Tamil Nadu 6.2 1.0 - 11.4 15.0 - - 67.2
Uttar Pradesh (East) - 6.2 5.6 8.6 20.0 - 20.0 100.8
Uttar Pradesh (West) 6.2 - 5.0 14.4 10.0 - 20.0 91.2
West Bengal - - 6.6 23.4 5.0 - 20.0 90.0
Total 12.4 55.0 129.2 333.2 195.0 30.0 370.0 1,849.6

2. Extensive Network Infrastructure and Coverage

Following merger of Vodafone and Idea, your Company has a strong network footprint across the country which enables us to offer comprehensive consumer offerings as well as have substantial capacity spectrum to address the growing data demand. Your Company has large network assets in the form of 2G, 3G, 4G equipment and country wide optical fibre cable (OFC). Your Company has over 192,000 2G sites across 470,000 towns and villages covering approximately a billion of population. Your Company has around 372,000 broadband (3G+4G) sites across 273,000 towns and villages. Your Company’s broadband coverage stands at 69.1% with presence in 155,632 unique broadband locations as of March 31, 2019. The 4G population coverage stands at 65% as of March 31, 2019, compared to less than 50% coverage for each of the brands pre-merger. As of March 31, 2019, your Company on 4G provides incremental coverage to 281 Mn Indians for the Vodafone brand and 187 Mn Indians for the Idea brand since the merger. Your Company has a combined portfolio of ~345,000 km of OFC including own built and Indefeasible Right of Use (IRU) OFC. Your Company also has pan India Voice over LTE

(VoLTE) services. Your Company has started deployment of latest technology of Dynamic Spectrum Re-farming (DSR), Massive MIMO and Small cells to maximize has spectrum efficiency. started deploying LTE on TDD band of 2300 MHz and 2500 MHz spectrum band to expand the capacity and on 900 MHz band on select sites to improve customer experience in dense areas.

Your Company is currently in the process of consolidating network equipment, spectrum and redeploying the overlapping broadband sites after the merger, which will result in coverage and capacity expansion. Your Company has successfully completed consolidation of network and radio access network of ten service areas of West Bengal (December 2018), Andhra Pradesh, Haryana, Madhya Pradesh, Himachal Pradesh, Assam, North East, J&K (January 2019), Bihar (February 2019) and Punjab (March 2019), along with part of the Delhi circle (East NCR). In addition to the spectrum consolidation in the 10 circles, your Company is also refarming GSM or 3G spectrum to deploy additional 4G carrier and has enhanced capabilities of some 900 MHz sites through dynamic spectrum-refarming. The incremental capex coupled with redeployment of co-located broadband sites will allow your Company to expand its broadband coverage and your Company targets to reach 80% 4G population coverage by March 2020. Your Company has also been deploying TDD spectrum and massive MIMO to augment its wireless data capacity in focus areas and intends to increase capacity to 2.5 times that of September 2018 by March 2020.

3. Large Subscriber Base

Your Company is the largest mobile telecommunications company in India in terms of subscribers. Your Company had over 334.1 Mn subscribers as of March 31, 2019, of which 110 Mn were broadband subscribers. As of the same date, your Company had 368 Mn VLR subscribers with VLR market share of 36.0%. As your Company is expanding its broadband coverage and capacity, this large subscriber base provides a great platform to upgrade voice only customers to users of data services and digital content.

4. Power Brand

Your Company has two strong brands, and both of which have generated customer affinity over the years. The brands, and are complementary in nature with the Idea brand primarily having a strong mass market presence, while the Vodafone brand has a strong presence in urban markets. Both brands have significantly expanded their reach over the years and we believe that the complementary nature of these brands gives us a strong platform to effectively compete across geographies and customer segments. We believe that the strength of our brands and our advertising campaigns have contributed significantly to our strong market position, subscriber growth and loyalty. At present, your Company’s communication strategy is aimed at strengthening brand stature by building 4G credentials. To promote 4G services to people from all walks of life, your Company has launched multiple advertising campaigns such as "Naya India Banayenge" for the Idea brand and "Speed Is Good" for the Vodafone brand. Your Company thus continues to focus on differentiating through brand equity, by creating strong assets for both brands Vodafone and Idea.

Strategy overview

Your Company has embarked on this challenging phase of integrating operations of erstwhile entities Vodafone India and Idea Cellular. Through meticulous planning, your Company has created a blueprint to improve revenue and profitability as well as to strengthen its 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 and your Company has made significant progress on all these initiatives.

1. Radically Accelerate integration

Your Company is in the process of integrating operations of Vodafone India and Idea to derive operational synergies and reduce expenditure and is working extensively towards creating a ‘fit for future’ organisation. Your Company is progressing well ahead of plan and intends to deliver opex synergies of Rs. 84 Bn by FY21, two years earlierthanpreviouslystatedtarget pressure over the last few years. Your at the time of merger announcement.

Your Company has successfullyconsolidatedspectrum progress in that direction. and radio access network in 10 service areas of West Bengal, Andhra Pradesh, Haryana, Madhya Pradesh, Himachal Pradesh, Assam, Northeast, J&K, Bihar and Punjab, in just seven months post merger. In addition, your Company is offering unified 4G experience in Bangalore city and in the entire Orissa circle. In the remaining circles, network integration is taking place on a cluster by cluster basis and subscribers of both the brands are gradually moving to a much larger and better network.

On operational integration, your Company has completed consolidation of zonal and circle offices across all 22 circles and has also completed the targeted integration of distribution network, retailers, service stores and service centers. Your Company is thus integrating at a great pace and has already achieved 60% of the targeted opex synergies within first seven months of merger completion.

2. Prioritizing investments in profitable districts

Your Company has segregated districts in India based on their growth potential and revenue and EBITDA contribution, instead of following a conventional approach of focusing on Service Areas. On the basis of such analysis, your Company has identified certain high potential districts which account for a large portion of company’s revenues and EBITDA. Your Company is in the process of building large 4G coverage and capacity in such districts with target of 95% population coverage and 3 times the capacity (80% 4G coverage and 2.5 times capacity on an overall national basis) by March 2020 compared to the date of merger. With the focused approach in these districts, your Company will optimise capital expenditure and offer a superior customer experience.

In non-profitable districts, your Company is in the process of shutting down the weaker of the two networks, which will enable us to incur operating expenses for one network while generating revenue from customers of both brands. This will help in further reducing operating expenses while ensuring that both brands get the experience of the stronger network.

3. Drive ARPU via simplification, rationalization and upselling

With intense competition, industry ARPUs have been under significant Company intends to simplify its customer offerings and has already made significant Your Company has introduced low value ‘service validity vouchers’ with minimum recharge of Rs. 35 (28 days validity) primarily targeting customers who used to have only incoming minutes on the network or who had an ARPU below a certain threshold. This led to a subscriber consolidation as expected but led to ARPU uplift and subsequent improvement in revenues.

4. Focus on fast growing revenue streams and partnerships to drive value

Your Company has a market leading position in enterprise services and intends to focus on fast growing streams such as Internet of Things (IoT), cloud services and converged communications. The investments in IoT platforms, future ready products and services and market partnerships coupled with Vodafone Group’s global IoT leadership will help your Company in capitalizing on a rapidly growing IoT market in India. Your Company is the first operator in the world to have executed voice & data calls on public cloud. My Vodafone App became the first application to be co-hosted with VNFs (converged One-Cloud across Network and IT).

Your Company is following a partnership approach tying with several regional and global content partners, ecommerce platforms, handset manufacturers, financial institutions, NBFCs among many others to drive value not only for the customers, but also for the company and its partners. Your Company currently has partnered with several global and regional content providers such as Amazon, Netflix, Sony, Zee, Hoichoi and Sun TV. In addition, your Company has entered into arrangements with key smartphone manufacturers to provide special offers to customers purchasing a new phone. Your Company has also used its retail footprint to enter into an arrangement with Amazon to help customers buy smartphones. Your Company has arrangements with certain non-banking financial companies and credit evaluation companies to help generate scores for credit worthiness for the non-banked population.

5. Strengthening Balance Sheet

Your Company continues to focus on strengthening its balance sheet with various capital raising initiatives. Your Company recently concluded the rights issue of Rs. 250 Bn, the largest ever in India. The issue witnessed strong participation and oversubscribed by nearly 1.2 times by non-promoter shareholders, a clear demonstration of investor support to the company’s strategy.

The merger of Bharti Infratel and Indus Towers has received approval from the Competition Commission and SEBI. NCLT, Chandigarh Bench, vide its order dated May 31, 2019, has sanctioned the scheme of amalgamation and arrangement. Post receipt of approval from DoT under foreign investment regulations and fulfilment of other conditions precedent, the merger is expected to close in FY20. Your Company has the option to monetize its 11.15% stake in Indus, which has an implied value of Rs. 53.6 Bn as of June interest 30, 2019 subject to closing adjustments or alternatively, receive new shares in the combined company based on the Merger ratio (1,565 shares of Bharti Infratel for every 1 Indus towers share) subject to closing adjustments."

SIGNIFICANT CHANGES IN KEY FINANCIAL RATIOS

The key financial ratios are as under:

Particulars 2018-19 2017-18
Current Ratio* 0.75 0.97
Debt Equity Ratio 1.98 1.89
Debt Service Coverage Ratio 0.83 1.45
Interest Service Coverage Ratio 1.01 1.67
Operating Profit Margin (%) 11% 20%
Net Profit Margin (%) (38%) (16%)
Return on Net Worth (%) (22%) (15%)

*Excluding borrowings and interest accrued.

The aforesaid ratios are not comparable, as during the year Vodafone Mobile Services Limited and Vodafone India Limited have been amalgamated with the Company with effect from August 31, 2018.

STANDALONE FINANCIAL RESULTS

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 43 (i) to the Standalone Financial Statement for further details) Accordingly, the figures for the current financial year ended March 31, 2019 are not comparable with the figures of the previous year ending March 31, 2018.

Revenues

Revenue from operations for the financial year ended March 31, 2019 increased by Rs. 90,302 Mn and stood at Rs. 368,588 Mn for the financial year ended March 31, 2019 as compared to Rs. 278,286 Mn for the financial year ended March 31, 2018, primarily due to an increase in our subscriber base on account of Merger of VMSL and VInL with the Company. Other Income comprising of interest income, dividend income and gain on investments in mutual funds stood at Rs. 10,733 Mn for the year ended March 31, 2019 as compared to Rs. 6,065 Mn for the year ended March 31, 2018. The increase is mainly on account of increase in gain on mutual funds

(including fair value gain) amounting to Rs. 5,668 Mn. This was partially offset by a decrease in interest income to Rs. 734 Mn for the year ended March 31, 2019 from Rs. 2,067 Mn for the year ended March 31, 2018 as there was significant income related to income tax refund in the previous year.

Operating Expenses

Total operating expenditure for the financial year ended March 31, 2019 increased to Rs. 329,799 Mn from Rs. 221,843 Mn incurred for the year ended March 31, 2018. Employee Benefit Expenses: Employee benefit expenses increased from Rs. 13,968 Mn for the year ended March 31, 2018 to Rs. 21,209 Mn for the year ended March 31, 2019, primarily as a result of an increase in our employee base on account of merger.

Network Expense and IT Outsourcing Cost: Network Expense and IT Outsourcing Cost increased from Rs. 97,449 Mn for the year ended March 31, 2018 to Rs. 169,269 Mn for the year ended March 31, 2019 primarily due to the merged network size , resulting in an increase in power and fuel expenses to Rs. 56,686 Mn and in passive infrastructure charges to Rs. 74,571 Mn for the year ended March 31, 2019 from Rs. 29,226 Mn and Rs. 49,608 Mn respectively for the year ended March 31, 2018.

The GSM coverage post merger covers nearly 1 billion Indians spanning 470,000 towns and villages. Vodafone Idea continues to focus on increasing network coverage and capacity through redeployment of co-located sites along with additional investments. Vodafone Idea broadband services spans 273,000 towns and villages covering over 69% of population.

Licence Fees and Spectrum Usage Charges: Licence Fees and Spectrum Usage charges increased from Rs. 28,667 Mn for the year ended March 31, 2018 to Rs. 39,243 Mn for the year ended March 31, 2019, primarily as a result of increase in our adjusted gross revenue.

Roaming and Access Charges: Roaming and Access

Charges increased from Rs. 35,358 Mn for the year ended March 31, 2018 to Rs. 41,690 Mn for the year ended March 31, 2019.

Subscriber Acquisition and Servicing Expenditure:

Subscriber Acquisition and Servicing Expenditure, decreased from Rs. 29,151 Mn for the year ended March 31, 2018 to Rs. 28,562 Mn for the year ended March 31, 2019, primarily as a result of decrease in customer verification charges, customer retention and customer loyalty expenses.

Advertisement, Business Promotion Expenditure and content cost: Advertisement, Business Promotion Expenditure and content cost increased from Rs. 8,147 Mn for the year ended March 31, 2018 to Rs. 10,386 Mn for the year ended March 31, 2019, primarily as a result of increase in content cost.

Other Expenses: Other expenses increased from Rs. 9,103 Mn for the year ended March 31, 2018 to Rs. 19,440 Mn for the year ended March 31, 2019 primarily on account of merger. The composition of total operating expenses (amount and %age to total operating expenses) is as follows:

Earning before Finance Costs, Depreciation, Amortisation and Taxes (EBITDA) before Exceptional Items

The increase in service revenues being lower than increase in operating expenditure has resulted in EBITDA decline from Rs. 62,508 Mn for the year ended March 31, 2018 to Rs. 49,522 Mn for the year ended March 31, 2019. EBITDA as a %age of Total Income decreased to 13.1% in the current year as compared to 22% in the previous year.

Depreciation, Amortisation and Finance Charges

Depreciation and Amortisation expenses increased from Rs. 83,148 Mn for the year ended March 31, 2018 toRs. 144,098 Mn for the year ended March 31, 2019. The depreciation charge for the year has increased from Rs. 49,688 Mn for the year ended March 31, 2018 to Rs. 77,074 Mn for the year ended March 31, 2019, primarily as a result of increase in our asset base on account of Merger and gross block additions during the year. The amortisation charge for the year has increased from Rs. 33,460 Mn for the year ended March 31, 2018 to Rs. 67,024 Mn for the year ended March 31, 2019 primarily as a result of an increase in our intangible assets on account of Merger and capitalisation of 2500 MHz Spectrum in few circles amounting to Rs. 93,700 Mn.

Finance Charges for the current year increased from Rs. 48,968 Mn for the year ended March 31, 2018 to Rs. 94,713 Mn for the year ended March 31, 2019, primarily due to an increase in interest expenses on fixed period loans as well as on deferred payment liability towards spectrum due to increase in loan base on account of Merger.

Exceptional Item

For the year ended March 31, 2019, we had net gain towards exceptional items amounting to Rs. 12,367 Mn. These mainly comprised income from the sale of Idea Cellular Infrastructure Services Limited of Rs. 37,644 Mn and income on account of re-assessment of certain estimates and accrual of Rs. 7,646 Mn as incomes and integration and merger related costs (including site exit and related costs) of Rs. 26,607 Mn, and charge on impairment of asset on account of network re-alignment/ integration of Rs. 5,589 Mn as costs.

Profits and Taxes

The loss before tax for the year ended March 31, 2019 stood at Rs. 176,922 Mn as compared to a loss of Rs. 69,608 Mn for the year ended March 31, 2018. The loss after tax for the year ended March 31, 2019 stood at Rs. 140,560 Mn. Cash Loss for the year ended March 31, 2019 stood at Rs. 32,836 Mn against cash profit of Rs. 9,970 Mn for the year ended March 31, 2018.

Capital Expenditure

The Company incurred capital expenditure of Rs. 114,550 Mn consisting mostly of network equipment (including capital advances) and capitalisation of one time spectrum charges.

Balance Sheet

The Gross Block and Net Block (including Capital Work in Progress and Intangible assets under development) stood at Rs. 2,470,479 Mn and Rs. 1,817,382 Mn respectively as at March 31, 2019. Investment in subsidiaries, associates and joint ventures (net of impairment) stood at Rs. 66,624 Mn which includes investment of Indus carried at FVTOCI on account of Merger of ABTL with the Company. Other financialassets increased by Rs. 49,066 Mn from Rs. 69,764 Mn to Rs. 118,830 Mn primarily due to increase in Investment in Units of Liquid Mutual Funds and increase in Trade Receivables. Other assets increased by Rs. 176,354 Mn from Rs. 48,604 Mn to Rs. 224,959 Mn primarily due to increase in deposit against demands and advance tax (including TDS). Deferred Tax asset as at March 31, 2019 stood at Rs. 89,351 Mn as compared to a Deferred Tax liability of Rs. 3,079 Mn as on March 31, 2018. The paid-up equity share capital of the Company increased by Rs. 43,763 Mn, pursuant to issuance of 4,375,199,464 equity shares on amalgamation of VMSL and VInL with the Company and 1,037,935 equity shares under Employee Stock Option Scheme (ESOS) under Employee Stock Option Scheme, 2006 and Employee Stock Option Scheme, 2013. Other equity of the Company increased from Rs. 262,415 Mn to Rs. 547,689 Mn mainly due to increase in reserves pursuant to amalgamation of VMSL and VInL with the Company which is partially offset by current year’s losses and indemnity liability created in accordance with the implementation agreement entered between the parties to define a settlement mechanism between the Company and erstwhile VInL shareholders for any cash inflow/ outflow that could possibly arise from the settlement of certain outstanding disputes pertaining to period until May 31, 2019. As on March 31, 2019, the total equity stood at Rs. 635,045 Mn.

Total borrowings increased by Rs. 679,548 Mn and stood at

Rs. 1,259,399 Mn as on March 31, 2019. Other financial liabilities increased by Rs. 264,124 Mn and stood at

Rs. 359,268 Mn primarily due to increase in payables for capital expenditure from Rs. 29,523 Mn for the year ended March 31, 2018 to Rs. 70,433 Mn for the year ended March 31, 2019, increase in trade payable from Rs. 35,489 Mn for the year ended March 31, 2018 to Rs. 135,421 Mn for the year ended March 31, 2019, indemnity liability created amounting to Rs. 83,923 Mn for the year ended March 31, 2019 and increase in interest accrued interest income related to income tax but not due on borrowings from Rs. refund in 1,769 Mn for the year ended March 31, 2018 to Rs. 64,146 Mn for the year ended March 31, 2019 which was partially off-set by decrease in interest accrued but not due on deferred payment liability from Rs. 26,039 Mn for the year ended March 31, 2018 to Rs. 4 Mn for the year ended March 31, 2019. Other Liabilities and Provisions increased by Rs. 41,395 Mn from Rs. 35,424 Mn to Rs. 76,819 Mn as on March 31, 2019 mainly due to increase in taxes, regulatory and statutory liabilities and increase in advance from customers.

Cash Flow Statement

The cash generated from operating activities of Rs. 52,079 Mn along-with net proceeds from borrowings Rs. 21,749 Mn, proceeds from sale of subsidiary of Rs. 42,303 Mn and interest and dividend of Rs. 4,282 Mn was primarily used for capital expenditure pay-out of Rs. 76,369 Mn, payment towards one time spectrum charges Rs. 39,263 Mn, payment of interest and finance chargesRs. 49,996 Mn and short term investment in Mutual Funds Rs. 3,752 Mn. Further the Company received cash and cash equivalent on amalgamation of VMSL and VInL with the Company (net of bank overdraft) of Rs. 55,249 Mn. Consequently cash and cash equivalents for the year end stood at Rs. 5,889 Mn.

CONSOLIDATED FINANCIAL RESULTS

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 43 (i) to the Standalone Financial Statement for further details) Accordingly, the figures for the current financial year ended March 31, 2019 are not comparable with the figures of the previous year ending March 31, 2018.

Revenues

Revenue from operations for the financial year ended March 31, 2019 increased by Rs. 88,136 Mn and stood at Rs. 370,925 Mn for financial year ended March 31, 2019 as compared to Rs. 282,789 Mn for financial year ended March 31, 2018, primarily due to an increase in our subscriber base on account of Merger of VMSL and VInL with the company.

Other Income comprising of Interest Income and Gain on investments in mutual funds stood at Rs. 7,311 Mn for financial year ended March 31, 2019 as compared to Rs. 3,530 Mn for financial year ended March 31, 2018. The increase is mainly on account of increase in gain in Mutual Funds amounting to Rs. 5,601 Mn. This was partially offset by a decrease in interest income to Rs. 218 Mn for the year ended March 31, 2019 from Rs. 2,078 Mn for the year ended March 31, 2018 as there was significant the previous year.

Operating Expenses

Total operating expenditure for the financial year ended March 31, 2019 increased to Rs. 330,495 Mn for financial year ended March 31, 2019 from Rs. 222,314 Mn incurred for financial year ended March 31, 2018.

Cost of Trading Goods: Cost of Trading Goods increased to Rs. 260 Mn for financial year ended March 31, 2019 from

Rs. 73 Mn incurred for financial year ended March 31, 2018 primarily due to an increase in number of data card/ handset sold as a result of merger.

Employee Benefit Expenses: Employee benefit expenses for the financial year ended March 31, 2019 increased to

Rs. 22,944 Mn from Rs. 15,430 Mn incurred for financial year ended March 31, 2018, primarily as a result of an increase in our employee base on account of merger.

Network Expense and IT Outsourcing Cost: Network Expense and IT Outsourcing Cost increased from Rs. 97,334 Mn for financial year ended March 31, 2018 toRs. 170,052 Mn for financial year ended March 31, 2019, primarily as a result of an increase in power and fuel expenses to Rs. 56,943 Mn for financial year ended March 31, 2019 fromRs. 30,597 Mn for financial year ended March 31, 2018 and an increase in passive infrastructure charges to Rs. 73,865 Mn from Rs. 45,484 Mn, primarily due to the expansion of our network, including that on account of Merger.

Licence Fees and Spectrum Usage Charges & Roaming and Access Charges: The increase in these expenses are specified under the Standalone Financial Results section.

Subscriber Acquisition and Servicing Expenditure: Subscriber Acquisition and Servicing Expenditure, increased marginally from Rs. 27,942 Mn for financial year ended March 31, 2018 to Rs. 28,007 Mn for financial year ended March 31, 2019.

Advertisement, Business Promotion Expenditure and content cost: Advertisement, Business Promotion Expenditure and content cost increased from Rs. 8,148 Mn for financial year ended March 31, 2018 toRs. 10,439 Mn for financial year ended March 31, 2019, primarily as a result of an increase in content cost.

Other Expenses: Other expenses increased from Rs. 9,362 Mn for financial year ended March 31, 2018 to Rs. 17,772 Mn for financial year ended March 31, 2019, primarily on account of merger.

Earning before Finance Costs, Depreciation, Amortisation and Taxes (EBITDA) before Exceptional Items

The increase in revenues being lower than increase in operating expenditure has resulted in the decrease of EBITDA from Rs. 64,005 Mn for financial year ended March 31, 2018 to Rs. 47,741 Mn for financial year ended March 31, 2019. EBITDA as a percentage of total Income decreased to 12.6% compared to 22.4% for financial year ended March 31, 2018.

Depreciation, Amortisation and Finance Charges

Depreciation and Amortisation expenses increased from Rs. 84,091 Mn for financial year ended March 31, 2018 to Rs. 145,356 Mn for financial year ended March 31, 2019. The depreciation charge for the year has increased from Rs. 50,630 Mn for financial year ended March 31, 2018 to Rs. 77,984 Mn for financial year ended March 31, 2019, primarily as a result of increase in our asset base on account of Merger and gross block additions during the year. The amortisation charge for the year has increased from Rs. 33,461 Mn for financial year ended March 31, 2018 to Rs. 67,372 Mn for financial year ended March 31, 2019, primarily as a result of increase in our intangible assets on account of Merger and capitalisation of 2500 MHz Spectrum in few circles amounting to Rs. 93,700 Mn.

Finance Charges for financial year ended March 31, 2019 increased from Rs. 48,130 Mn to Rs. 94,628 Mn, primarily due to an increase in interest expenses on fixed period loans as well as on deferred payment liability towards spectrum due to increase in loan base on account of Merger.

Exceptional Item

For the year ended March 31, 2019, we had net gain towards exceptional items amounting Rs. 8,521 Mn. These mainly comprised income from the sale of Idea Cellular Infrastructure Services Limited of Rs. 33,473 Mn and income on account of re-assessment of certain estimates and accrual of Rs. 7,893 Mn as incomes and integration and merger related costs (including site exit and related costs) of Rs. 26,607 Mn, and charge on impairment of asset on account of network realignment/ integration of Rs. 5,511 Mn as costs.

Profits and Taxes year ended March The loss before tax for the year stood at Rs. 181,754 Mn as year ended March 31, compared to a loss of Rs. 64,992 Mn for financial year ended March 31, 2018. The loss after tax for financial year ended year ended March 31, 2018 to March 31, 2019 stood at Rs. 146,039 Mn. Cash loss for the year ended March 31, 2019 stood atyear ended March 31, 2019 and Rs. 36,592 Mn against cash profit ofRs. 17,636 Mn for financial year ended March 31, 2018.

Capital Expenditure

The capital expenditure (including capital advances) during the year was Rs. 115,033 Mn consisting mainly of network equipment and capitalisation of one time spectrum charges.

Balance Sheet

The Gross Block and Net Block (including Capital Work in Progress and Intangible assets under development) stood at Rs. 2,486,722 Mn and Rs. 1,828,323 Mn respectively as at March 31, 2019. Investment in joint venture and associate stood at Rs. 15,298 Mn which includes investment of Indus carried at FVTOCI on account of Merger of ABTL with the Company. Other financial assets increased byRs. 51,058 Mn from Rs. 70,007 Mn to Rs. 121,065 Mn, primarily due to increase in Investment in Units of Liquid Mutual Funds and increase in Trade Receivables. Other Assets increased by Rs. 173,877 Mn from Rs. 54,399 Mn to Rs. 228,216 Mn primarily due to increase in Advance tax (including TDS).

The paid-up equity share capital of the Company increased by Rs. 43,763 Mn, pursuant to issuance of 4,375,199,464 equity shares on amalgamation of VMSL and VInL with the Company and 1,037,935 equity shares under Employee Stock Option Scheme (ESOS) under Employee Stock Option Scheme, 2006 and Employee Stock Option Scheme, 2013. Other equity of the Company increased from Rs. 229,032 Mn to Rs. 508,992 Mn mainly due to increase in reserves pursuant to amalgamation of VMSL and VInL with the Company which is partially offset by current year’s losses and indemnity liability created in accordance with the implementation agreement entered between the parties to define a settlement mechanism between the company and erstwhile VInL shareholders for any cash inflow/ outflow that could possibly arise from the settlement of certain outstanding disputes pertaining to the period until May 31, 2019. As on March 31, 2019, the total equity stood at Rs. 596,348 Mn.

Total borrowings increased by Rs. 679,548 Mn and stood at Rs. 1,259,399 Mn as on March 31, 2019. Other financial liabilities increased by Rs. 267,196 Mn and stood at Rs. 362,330 Mn for financial year ended March 31, 2019 primarily due to increase in payables for capital expenditure from Rs. 29,523 Mn for financial year ended March 31, 2018 toRs. 73,186 Mn for financial year ended March 31, 2019, increase in trade payables from Rs. 35,479 Mn for financial 31, 2018 to Rs. 135,166 Mn for financial 2019, increase in interest accrued but not due on borrowings from Rs. 1,769 Mn for financial Rs. 64,139 Mn for financial indemnity liability created in the current year of Rs. 83,923 Mn which is partially off-set by decrease in interest accrued but not due on deferred payment liability from Rs. 26,039 Mn for financial year ended March 31, 2018 toRs. 4 Mn for financial year ended March 31, 2019. Other Liabilities and Provisions increased by Rs. 42,051 Mn from Rs. 35,529 Mn to Rs. 77,580 Mn as on March 31, 2019 mainly due to increase in taxes, regulatory and statutory liabilities and increase in advance from customers. Deferred Tax Liabilities as at March 31, 2019 stood at Rs. 471 Mn as compared to Rs. 659 Mn as at March 31, 2018.

Cash Flow Statement

The cash generated from operations of Rs. 52,681 Mn along-with net proceeds from borrowings of Rs. 21,299 Mn, proceeds from sale of subsidiary of Rs. 42,303 Mn and interest and dividend of Rs. 3,334 Mn was primarily used for capital expenditure pay-out of Rs. 76,519 Mn, payment towards one time spectrum charges Rs. 39,263 Mn, payment of interest and finance chargesRs. 49,914 Mn and short term investment in mutual funds Rs. 3,731 Mn. Further the Company received Cash and cash equivalent of VInL and its subsidiaries on amalgamation of VMSL and VInL with the Company (net of bank overdraft) of Rs. 58,307 Mn. Consequently cash and cash equivalents stood increased at the year end of Rs. 7,558 Mn excluding Rs. 921 Mn of VMPL classifiedas asset held for sale.

Human Resource Management

Vodafone Idea Limited, is an Aditya Birla Group and Vodafone Group partnership, making it India’s largest telecom company and second largest globally at the time of merger. It is the coming together of two large established pan India telecom service providers.

Its people architecture has been built on the principles of being a consumer centric company with technology as the bedrock. The organization has equipped itself for high change agility, has embedded trust at the foundation of its people agenda, and has adopted digital as the first port of call for all solution building.

People Integration

Consequent to the merger, it was imperative to reorganize and rationalize the combined organization so as to derive synergies and also set up the new Company as a future fit great place to work.

As part of the transformation journey, the mammoth task of people integration has been completed in a fair and seamless manner with meritocracy, transparency and equitability being the guiding principles.

Your Company undertook the process of "Know your talent" (KYT) which had 100% coverage. The technology was leveraged to make the process scalable, speedy while ensuring minimum disruption to business. The final decision on people involved inputs from multiple sources so as to ensure fair conclusions.

Inclusion

At Vodafone Idea, we realize that Diversity and Inclusion at the workplace helps foster an open and healthy work environment and is critical to our business strategy. We believe Women at various management levels bring plurality, diverse thinking, varied leadership styles and values. To build a diverse internal team we need to focus on creating a supportive ecosystem to hire, engage and retain women talent. We are enabling women in the workforce by taking care of their professional and personal needs depending on their life stage. Hence we have introduced new policies like maternity policy, travel policy, reach home support, flexible hours and remote location etc. Each of which offers more flexibility and comfort to shoulder these life stage demands and be effective at work.

Enhancing women proportion in the organization continues to be our focus area. In order to create a company culture with leadership commitment towards gender inclusion we have also introduced capability enhancement for women, gender sensitization workshops and employee assistance program.

Health and Safety

Providing a safe workplace is a key promise to not only our own employees but to all our partners, vendors and associates who work on our behalf in different functions and activities. We have framed our Absolute Safety Rules and standards for all high risk activities in our business. We have rigorous awareness creation training protocols and mechanisms, audit architecture to assess effectiveness of implementation of our programs and standards, and consequence management norms to deal with violation of standards. We are deeply committed to walking the talk on our promise that we shall not do business by putting anybody at risk.

Talent Management

At Vodafone Idea we want to create Talent as a competitive differentiator. To be able to do so we must have the capability to accurately identify top talent or high potential employees who can be groomed for future roles. Through the talent management program we are building,

• Talent that is fit-for-Purpose & sets the stage for the future.

• Succession planning as the key outcome of the talent identification process.

• Choreographed careers for Top Talent.

To simplify and standardize our expectation of what is required for the future, we have developed a core competency framework to guide us. The framework articulates the expected behaviors considering the business evolution and context. The competencies detail the future fit behaviors at different career stages. These behaviors critical for success in this market, now and for tomorrow. High Potential employees display all or most of the behaviors at a significantly higher degree compared to peer group for their career stage.

Learning & Development

Given the business context and expected behaviors, the change management training was initiated which covered leadership teams across all circles. Living the value of digital, VIL mobile learning app was launched in the month of March 2019. All employees have completed the code of conduct module on the VIL mobile learning app by April 2019. There are distinct segments for learning and development initiatives:

- Leadership Development Programs for Circle Business Heads and Corporate HODs

- Leadership development Programs for CLT

- Talent development

- Young leaders’ development Plan

- Women Capability Development

To ensure that we build on the VIL competencies for all employees, our L&D propositions are designed to cater to each career stage.

Risk Management

The Risk Management framework of your Company ensures regular review by management to proactively identify the

Outlook

The merger of Vodafone India and Idea Cellular, a partnership between two strong promoters Aditya Birla Group and Vodafone group, has created India’s leading telecom service provider. The merger of two large organizations with complementary strengths has opened multiple opportunities for your Company to draw synergies across the board. Your Company has set on a strong course with meticulous pre-merger planning, a well-defined strategy and rigorous post-merger execution. Your orincreasedcostofcompliance.Your Company continues to focus on accelerated execution of the stated strategy of rapid integration, prioritizing investment in profitable areas, driving ARPU up with simplification and upselling, focus on partnerships to drive value and strengthening the balance sheet.

Since merger, your Company has achieved several milestones ahead of the expected timeline and is well on track to deliver the guided synergies envisaged at the time of merger. Your Company is making significant investments for expanding coverage and capacity of 4G network with target of reaching 80% 4G population coverage (95% coverage in key profitable districts) and 2.5 times capacity by March 2020, compared to September 2018. All these initiatives will provide the best of customer experience to our retail and enterprise customers; and help in creating an agile and future-fit organization. The rights issue which was concluded in May 2019 reflects the strong shareholders’ belief in our strategy. The proceeds from the rights issue coupled with various assets monetization initiatives underway puts your Company in a strong position to achieve its strategic intent.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Company’s objectives, projections, estimates, expectations may constitute a "forward-looking statement" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company’s operations include economic conditions affecting demand/ supply and price conditions in the domestic markets in which the Company operates, changes in the Government Regulations, tax laws and other statutes and other incidental factors.