Abstract

Vodafone Idea Limited (VIL), the third largest telecom company in India in terms of subscriber base, has been facing challenges despite having significant growth opportunities. These challenges include regulatory challenges, the policy environment, pricing challenges, and intense competition. As a result, the company’s revenues declined and operating costs increased, leading to decline in its profitability margins. At one point of time, the management of both Vodafone India Limited and Idea Cellular Limited were about to sell their stakes due to the mounting losses of the company. However, some policy and regulatory relief provided by the Government of India have offered a ray of hope to the embattled telecom company. Relief on Adjusted Gross Revenue (AGR) payment dues for a period of 4 years and financial support from the Department of Telecom (DoT) are expected to provide some respite to all telecom operators, including VIL. Also, the market has been witnessing some improvement in Average Revenue Per User (ARPU). With the leeway provided by the DoT, telecom operators have been gearing up to improve their market share in terms of subscriber base and APRU. The target ARPU to be achieved by the end of year 2022 has been placed at Rs. 200 by leading telecom operator Airtel. The management of VIL has also been looking forward to managing its operating activities and to raising additional financing to improve network coverage and accessibility and is looking at rolling out 5G services along with other competitors during the financial year 2022-23. All the market factors and the Moving Average Convergence/Divergence (MACD) Indicator are in favor of VIL. The present case study provides scope for discussing the concept of profitability of a company having negative profits from an investment perspective, and also the scope for discussing the concept of MACD. It also discusses how to interpret the stock trading information using the MACD indicator.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Ratio analysis as a tool of financial statement analysis
• Profitability ratios used in the profitability analysis of a company
• Analysis and interpretation of the profitability position of a company having negative profit margins
• The concept of Moving Average Convergence/Divergence (MACD)
• Turnaround strategy of the company (through an initial reduction/managing of operating costs and/or assuming that VIL can generate more capital expenditure in future)

Keywords

Profitability Analysis; Net profit ratio; Operating Expenses ratio; Return on Assets; Return on Capital Employed; Return on Equity; Moving Average Convergence Divergence (MACD); Vodafone Idea Limited; Average Revenue Per User; Adjusted Gross Revenue; Spectrum Usage Charges