The global economy recorded a healthy growth of 3.6% in 2018. During the second half ofthe year however the global economy lost some momentum mainly on account of theincreased trade frictions between the US and China and the tightening of financialconditions. International Monetary Fund (IMF) expects growth to decelerate to 3.3% in 2019and its projections suggest that all three major engines of the global economy viz. USChina and Euro area are likely to decelerate in 2019. On the positive side however IMFexpects world economic output to recover and grow at 3.6% in 2020.
Of late there have been a few growth-supportive factors such as the announcement ofeconomic stimulus in China and halt to the process of monetary policy tightening indeveloped countries.
But the business sentiment has become somewhat clouded with challenges arising from theapparent setback to the US-China trade talks the spread of trade frictions to technologysectors and the increased intermingling of economic policies. These challenges signal thatglobal commodity prices could be under pressure.
Indian economy exhibited mixed record in the just concluded fiscal. GDP growth slowedfrom 7.2% in FY18 to 6.8% in FY19. Sub-par rainfall in 2018 tight financial conditionsfaced by the non-banking financial sector and moderation of external demand were the keychallenges faced by the economy. Consumption growth declined during the second half of theyear but there were some signs of revival in the investment cycle as the rate of grossfixed capital formation improved from 31.4% of GDP in FY18 to 32.3% in FY19.
Macroeconomic stability indicators broadly maintained their health. Low inflation hascreated the space for monetary policy easing which will also help support growth revival.The fiscal deficit target for FY19 was adhered to despite a shortfall in tax revenues.While the current account deficit was high at 2.6% of GDP during the first three quartersof FY19 the softness in international oil prices portends its narrowing in the comingquarters. Following the resounding political mandate for the ruling Governmentexpectations of further economic reforms and impetus to large infrastructure investmentshave been reinforced. These are reflected in strong inflows in the capital market takingequity indices to record levels in the weeks following the general elections.
Indias medium-term growth prospects continue to be robust. Significant years suchas GST and insolvency code would raise Indias growth potential in the coming yearsamplifying the effect of the long-term structural cornerstones of the Indian growth storysuch as demography and urbanization. In the near-term however uncertainty over theforthcoming monsoon season and the heightened global risks present headwinds for FY20.Accordingly the outlook for the Indian economy in FY20 is one of cautious optimism atthis juncture.
Your Companys Performance
Effective August 31 2018 Vodafone India Ltd. merged with your company leading to thecreation of Vodafone Idea Limited a partnership between two strong promoters Aditya BirlaGroup and Vodafone Group.
Your Company is now one of Indias leading telecommunications company offeringvoice data enterprise services and several other value added services ("VAS")including short messaging services digital services content and enterprise solutions.Your Company not only has the highest subscriber market share of 33.7% with 333.6 millionactive subscribers as of May 31 2019 it is also the market leader in the growingenterprise segment services such as IoT.
The Indian telecom operators continue to operate in tough market conditions ascompetitive pressures forced operators to offer pricing plans which are the cheapest inthe world. This coupled with massive investment requirements for expansion of broadbandcoverage and capacity has significantly worsened the existing financial stress in theIndian telecom sector overall and further undermined the position of all operators. Hencepricing revival is now imperative for the long term sector health.
While the operating challenges remain the consolidation in the industry has resultedin the creation of three large private and one public sector operator who are poised tobenefit from the long term sector opportunities with rising broadband penetration andever-increasing data demand. Your Company with its largest spectrum portfolio anationwide network of sites and optical fiber wide distribution reach and strong customeraffinity for its two brands - Vodafone and Idea is very well positioned to be successfulin this new consolidated marketplace.
Your company is focused on accelerated integration of erstwhile entities with a veryclearly defined strategy having no dependencies on external factors. The outcome ofexhaustive planning is a well-defined five-pillar strategy (i) accelerated executionintegration (ii) prioritizing investment in profitable areas (iii) driving ARPU up withsimplification and upselling (iv) focus on partnerships to drive value and (v)strengthening the balance sheet. This forms the blueprint basis which several strategicinitiatives have been undertaken to improve revenue profitability and competitiveposition in the marketplace. Within just seven months of the merger your Company hasalready achieved several milestones well ahead of the expected timeline and is on trackto deliver the guided synergies envisaged at the time of the merger.
Your Company has also successfully closed Indias largest rights issue offeringof Rs. 25000 crores with strong demand from existing and new shareholders.
With industry consolidation now over we believe that all existing operators are wellplaced to benefit from the several opportunities ahead. Customer needs continue to evolvewith higher demand and consumption of both voice and data.
Indias young population is spearheading this growth via increasing social mediausage and consumption of content through both video and audio apps. Further ruralpenetration is still at a relatively low level of 57.1% indicating nearly 300-400 millionIndians are yet to adopt mobile services and join the ongoing digital revolution.
In the enterprise domain the rapid adoption of new-age technologies IoT CloudArtificial Intelligence etc. are opening a new world of opportunities for telecomoperators. Likewise the Governments thrust on Digitalization via strategic programssuch as Digital India Smart City and Bharat Net require robust nationwide broadbandconnectivity for seamless delivery and execution enhancing prospects of the telecomsector overall.
Your Company continues to focus on diligent execution of its stated strategy tooptimize the opportunities ahead. With its strong spectrum portfolio nationwide networkfootprint aggressive broadband investments and complementary brands Vodafone and Ideayour company is well placed to benefit from these trends.
Kumar Mangalam Birla