2022

International Management -
Assignment

MANUFACTURING & DELIVERY OF

BADMINTON RACQUETS FOR
YONEX SPORTS LIMITED

PGCBM-40

RAVITEJ REDDY H
TB21003

INTERNATIONAL MANAGEMENT ASSIGNMENT | PGCBM-40, XLRI

Page | i
 Table of Contents

Sl. No Particulars Page No.

1 Introduction 1

2 Synergies 2

3 Structure of the transaction 3

4 Advisors to the transaction 4

5 Financial Analysis and Discussion 4

6 Stock Movement 7

7 Legal Aspects 7

8 Conclusion 8

9 Bibliography 9

Page | ii
1. INTRODUCTION
1.1 Idea Cellular

Idea Cellular was initially established as Birla Communications Limited in 1995 after they
won the GSM frequencies in Gujarat and Maharashtra. Birla Communications Limited went
through several mergers and acquisitions with Grasim Industries, AT&T and Tata and
renamed to Idea Cellular. The latter companies, Tata and AT&T exited the deal and Aditya
Birla Group had a new subsidiary to handle.

Idea Cellular Limited was a mobile network operator headquartered in Mumbai, Maharashtra.
It was a GSM operator and had about 220 million subscribers as of June 2018.

1.2 Vodafone India

Vodafone India (now Vodafone Idea Limited) is the Indian subsidiary of the Vodafone Group
which is a UK-based telecommunications company. Vodafone India entered the Indian
telecommunications market by acquiring a 10% stake in Bharati Enterprises (Bharati operated
Airtel, India’s largest telecom company at that time) in 2005. It later went onto acquire Hutch
in 2007 and Hutch was renamed to Vodafone India.

On August 2018, India’s 2nd and 3rd largest companies Vodafone India and Idea Cellular
respectively announced a merger valued at 23 Billion USD. Vodafone India and Idea Cellular
decided to have a merger of equals with 1:1 swap ratio. The Vodafone group holds a 45.1%
stake, Aditya Birla Group holds a 26% stake and the remaining 29% stake in the new entity,
Vodafone Idea, will be held by the public. Aditya Birla Group will have joint control over the
new company, Vodafone Idea. The new company had a combined subscription base of about
400 million.

1.3 Telecommunication Industry in India

India has the world’s 2nd largest telecommunications network (both fixed lines and mobile
phones). As of 2020, there were about 1171 million subscribers in India. India is also home to
one of the lowest voices and data tariff rates in the world, made possible by fierce
competition in the mobile network market. India also has the world’s 2 nd largest internet
users; India also has taken the top spot for most mobile data used in the world at an average
of 9.8 GB per month per smartphone.

The mobile network market has been disrupted with the entry of Jio. It offered free data and
voice calls close to over 7 months which led to a huge subscriber base shifting to Jio.

1.4 Reason for the Merger

Page | 1
The primary reason of this merger was to compete with Jio, which at the time of launch
disrupted the mobile network market with its free voice and data at cheap rates. The idea was
to combine the subscriber base of Idea in the rural and semi-urban markets with the
Vodafone’s robust presence in urban metro cities and leverage synergies savings of about
14,000 INR each year.

The merger facilitated the mutual growth of Vodafone and Idea to be the 2 nd largest telecom
provider as of 31st March 2021. According to a research, if it wasn’t for this merger, both
Vodafone and Idea, as separate entities would be competing with each other for the limited
market share and eventually run out of resources to do so in the long-run.

2. VODAFONE IDEA MERGER SYNERGIES

Particulars Amount

Rental and Energy Cost 4,900

IT 300

Network Cost 300

Acquisition, Servicing and Advertising 1,200

Total 6,700

Figure 1: Synergies of Vodafone Idea Merger

Source: Company filings

(https://www.bloombergquint.com/business/vodafone-idea-aims-to-achieve-merger-
synergies-in-half-the-time-anticipated)

3G/4G Spectrum Synergy

Particulars Vodafone Idea Vodafone Idea Airtel Jio

3G/4G Spectrum 411 316 727 860 650

(in MHz)

Page | 2
Figure 2: Synergy of the combined spectrum (higher the radio spectrum available,
higher the range) Vodafone Idea Limited

Source: Company data, DoT, Goldman Sachs Global Investment Research

(https://www.livemint.com/Companies/liVpiwdNALGfOgccApI6sK/The-rationale-behind-
IdeaVodafone-merger-in-five-charts.html)

3. STRUCTURE OF THE TRANSACTION

The promoters of Idea and Vodafone Group will be joint ventures of the integrated business
and will have equal assurance rights for both promoters on key issues. It incorporates diverse
level of shares for Vodafone and Idea while the rest has a place with the public investors.

Together, Vodafone is allocated 364.50 crores shares containing 50.3% of Equity amounting
to approximately INR 27,600 crores. However, the Aditya Birla group receives a 4.9% share
of the combined business at Vodafone for INR 3900 crores (INR 109 / – per share) so the
share of the Aditya Birla group reaches 26%.

Now after passing 4.9% of shares to Aditya Birla Group, Vodafone have 45.1% of shares post
the completion of merger. The leftover 26% is possessed by Idea investors.

Since the merger is based on the principle of equalization and the promoters of Idea (Aditya
Birla Group) hold the rights to acquire 9.5% additional stake from Vodafone under agreed
deal to equalize as per the following proposition.

Vodafone: 45.1% - 9.5% (additional stake) = 35.6% of shares

Idea: 26% + 9.5% (additional stake) = 35.6% of shares

Financial Consolidation
1600
Rupees in Crores

1200

800

400

Financials
Idea Vodafone Idea Integrated with Vodafone

Page | 3
 Figure 3: Financial consolidation pre and post-merger

Idea Post Aditya group Post Aditya total

Details Idea Vodafone acquisition on merger acquisition from
post-merger from Vodafone Vodafone

Idea
42.45% 21.10% 26.00% 35.50%
Facilitators

Vodafone
50.30% 45.40% 35.90%
Promoters

Social 57.55% 28.60% 28.60% 28.60%

Total 100% 100% 100% 100%

Figure 4: Detailed share table post-merger

Source: https://blog.ipleaders.in/deal-analysis-vodafone-idea-merger/

4. ADVISORS TO THE TRANSACTION

Idea Cellular recruited no investment banks and depended in-house group to deal with the
$23 billion Vodafone consolidation bargain that makes India's biggest telecom administrator.

Vodafone hired six advisers such as Morgan Stanley, Robey Warshaw, Bank of America
Merrill Lynch, Kotak Investment Banking, Rothschild and UBS.

5. FINANCIAL ANALYSIS AND DISCUSSION

5.1 Mode of Payment

Idea and Vodafone consented to blend their activities with a swap ratio of 1:1. This
recommends that operationally, it is a consolidation of two equivalents.

The advance payment of Rs. 7,268 crores were split between a bank guarantee of Rs.3,342
crore to cover what Idea owes on account of one-time spectrum charges and cash of Rs.3,926
crore by Vodafone towards the market price for non-auctioned airwaves.

5.2 Trend Analysis Pre and Post Merger

Income Mar-20 Mar-19 Mar-18 Mar-17

Total operating revenues 124.89% 102.95% 77.73% 98.53%
Other income 612.44% 605.22% 342.00% 111.10%
Total revenue 127.29% 105.42% 79.03% 98.60%

Page | 4
Expenses        
Operating and Direct Expenses 117.72% 137.14% 94.28% 102.70%
Employee benefit expenses 133.87% 143.93% 94.79% 110.32%
Finance costs 864.93% 532.74% 275.43% 223.75%
Depreciation and Amortisation Expenses 383.86% 231.55% 133.61% 123.73%
Other expenses 244.54% 143.80% 67.33% 143.40%
Total expenses 217.37% 178.19% 110.92% 115.62%
Profit/loss before tax -1530.07% -434.61% -170.99% -34.86%
Total tax expenses 761.27% -255.25% -175.67% -41.27%
Profit/loss for the period -2763.55% -531.16% -168.47% -31.41%

Figure 5: Trend analysis pre- and post-merger

From the figure 5, we can see that there is an increase in the total revenue from 98.6% to
127.29%. Also, there is a high increase in total expenses from 115.62% to 217.37%. This
excess expense over revenue resulted in decline in profit from -31.41% to -2763.55%.

5.3 Ratio analysis

5.31 Current ratio

Year Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Current
0.17 0.33 0.94 0.44 0.28
ratio

Figure 6: Current Ratio

In 2016 the firm’s ability to cover its current liability with its current assets was 0.28 and it
goes up to 0.44 in 2017 than it gets increased to 0.94 in 2018 and there is sudden reduce in
2019 to 0.33 and in 2020 it gets decreased to 0.17. a good current ratio should be between
1.2-2 but it is below 1 in all 5 yrs. therefore the company doesn’t have enough liquid assets to
cover its short-term liabilities

5.32 Quick ratio

Year Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Quick
4.74 1.95 0.05 1.23 2.4
ratio
Figure 7: Quick Ratio

Page | 5
According to the definition of quick ratio or acid test ratio, the company should have the
ability to pay its liabilities through its most liquid assets.in 2016 the quick ratio is 2.4 and
then decreased to 1.23 than constant decrease in 0.05 and the slowly increased to 1.95 and in
2020 it is 4.74 it shows that the company is fully equipped to be instantly liquidated to pay off
its current liabilities.

5.33 Account receivables

Year Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Account receivable 1.99 2.56 5.45 8.62 28.76

Figure 8: Account Receivables Ratio

The account receivable for 2016 is 28.76 and it drastically decreases to 8.62 and in 2018 it is
5.45 than decreases to 2.56 and in 2020 it decreases to 1.99 this shows that it is not signified
that it will be flush with cash at a defined date in future

5.34 Gross profit margin

Year Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Gross profit margin 51% 30% 37% 43% 44%

Figure 9: Gross Profit Margin
It measures the percentage of each sales remaining after the firm has paid for its goods. The
higher the firms gross profit margin, the better .in this Vodafone company in 2016 it was 44%
than it decreased to 43% in 2017 and then decreased to 37% and drastically decreased to 30%
but in 2020 it increased to 51%. Therefore, the company is doing better in 2020 compared to
last 4 yrs.
5.35 Operating Profit Margin

Year Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

Operating profit
-94% -26% -8% 7% 15%
margin
Figure 10: Operating Profit Margin

It measures the percentage of each sales remaining after all cost and expenses (except for
interest, taxes, and preferred stock dividends) are deducted. A higher operating profit margin
is always preferred from 2016 it was 15% than it reduced to 7% and in 2018 it was -8% and
drastically reduced to -26% and -94%. Therefore, it shows that Vodafone idea is not having
good operating profit margin.

Page | 6
6. STOCK MOVEMENTS
Particulars Pre-Merger (in INR) Post-Merger (in INR)
Vodafone 65.29 51.85
Idea 100.70 92
Figure 11: Stock Movements of Vodafone and Idea Pre and Post merger

Source: www.moneycontrol.com

The shares prices of Idea Cellular began to fall at a 14% rate which shows that the public was
not in line with the idea of a merger with Vodafone.

7. LEGAL ASPECTS OF VODAFONE IDEA LTD

As required by the Companies, issued by the Central Government of India in terms of sub-
section (11) of area 143 of the Act, we allow within the " an articulation on the things
indicated in.

2. As required by Area 143(3) of the Act, the report says that:

(a) They have looked for and gotten all the data and explanations which to the most excellent
of our information and conviction were vital for the purposes of our review;

(b)In their opinion, legitimate books of account as required by law have been kept by the
Company so distant because it shows up from our examination of those books; (The Adjust
Sheet, the Statement of Benefit and Loss)

(c) In accounting the Statement of Other Comprehensive Salary, money Stream Statement
and Statement of Changes in Value managed with by this report are in agreement with the
books of account;

(d)With regard to the ampleness of the inside budgetary controls over monetary announcing
of the Company with reference to these standalone Ind AS monetary articulations and the
working adequacy of such controls, allude to our isolated Report in to this report;

(e) In conclusion, the administrative compensation for year finished Walk 31, 2019 has been
paid/ given by the Company to its executives in understanding with the arrangements of area
197 studied with Plan V to the Act;

(f) The other things to be included within the Auditor’s Report in agreement with Run the
show 11 of the Companies Rules, 2014, as revised in our opinion and to the most excellent of
our data and concurring to the clarifications given to us:

The Company has unveiled the effect of pending litigations on its money related position in
its standalone Ind AS monetary
Page | 7
8. CONCLUSION
The merger seemed necessary at the time of entry and dominance of Jio in the mobile
network space. A study suggests that, if it wasn’t for the merger, both Vodafone and Idea
would be fighting each other for a percentage of the market share and eventually run out of
resources to do so in the long-run Vodafone Idea reported a massive net loss of Rs 50,922
crore for the July-September quarter, the highest-ever quarterly loss by an Indian company,
on reports that the government has directed the companies to clear their adjusted gross
revenue dues within three months. Liabilities on account of AGR are estimated at Rs 25,678
crore.

The net worth has plummeted 70% and is now at 24,000 crore INR. The shares of Vodafone
Idea have fallen sharply as well, it has tanked 28% in a week of 2019. The CEO has stated
that, the company was in a “crucial situation”.

As of 2021, the merger between Vodafone India and Idea can be said to on the unsuccessful
side.

Page | 8
9. BIBLIOGRAPHY

1. https://www.business-standard.com/podcast/economy-policy/why-vodafone-idea-is-in-
trouble-despite-being-india-s-no-2-telecom-firm-119111500872_1.html#:~:text=Vodafone
%20Idea%20yesterday%20reported%20a,revenue%20dues%20within%20three%20months.

2. https://www.livemint.com/Companies/liVpiwdNALGfOgccApI6sK/The-rationale-behind-
IdeaVodafone-merger-in-five-charts.html

3. https://www.slideshare.net/NikhilJain399/case-study-on-vodafone-india-merged-with-idea-
cellular

4. https://blog.ipleaders.in/deal-analysis-vodafone-idea-merger/#:~:text=On%20March
%2020%2C%202017%2C%20India's,estimated%20at%20US%20%24%2012.5%20billion.

5. https://www.kotaksecurities.com/ksweb/Meaningful-Minutes/4-Things-to-know-about-the-
Idea-Vodafone-Merger

6. https://telecom.economictimes.indiatimes.com/news/vodafone-idea-to-deliver-merger-
synergy-benefits-of-rs-14000-crore-by-fy21/66740069#:~:text=x-,Vodafone%20Idea%20to
%20deliver%20merger%20synergy%20benefits%20of%20Rs%2014000,than%20earlier
%20estimated%20FY%2023.

Page | 9