Wednesday, May 19, 2010

Vodafone turns clock back to 2007 value in India

S Kalyana Ramanathan / London May 19, 2010

Competition forces lower valuation, despite strong results.

Britain's telecom giant, Vodafone Group Plc, has written down the value of its Indian operation by £2.3 billion (Rs 15,156 crore) to an estimated £5.7 billion (Rs 37,530 crore).

The reason given is the intense competition it has faced since it took the acquisition route to enter the world’s fastest-growing mobile telecom market in 2007.

Globally, Vodafone today reported a nearly three-fold growth in net profit at £8.61 billion ($12.4 billion) for 2009-10.

The company today released its annual results for the year ended March 31, 2010, and said, “Although our operational performance in India since acquisition in 2007 has been strong, the award of six new national licences in the market one year after our entry and the resulting intense price competition have led to an impairment charge of £2.3 billion.”

Interestingly, the company’s current valuation of its Indian business at £5.7 billion is the same as the price it had paid in 2007. Apart from a cash consideration of £5.7 billion, Vodafone also took on itself debt worth £1 billion ($2 billion at that time) when it acquired the stake in Hutch Essar.



Current Rs 1,01,697 crore ($22.31billion)

As on Feb 11, 2007 Rs 1,46,701 crore ($33.25 billion)


Current Rs 29,928 crore ($ 6.56 billion)

As on Feb 11, 2007 Rs 99,317 crore ($ 22.51 billion)

Strong Indian growth
A Vodafone spokesperson later clarified that impairment charge was a “non-cash” book adjustment and did not reflect its impressive performance in India. Vodafone, in the books of its holding company, puts a value on the operations in various countries. The company spokesperson said prior to the revaluation, its Indian operations were approximately valued at £8 billion.

The lower valuation also comes after a year when its revenues grew by 14.7 per cent in India. The company’s Indian operations attracted 32 million customers in March, making it the second largest mobile telecom company in India.

“In a very competitive pricing environment, we were pleased to have confirmed our number two position in the market. Since Vodafone’s entry into India in 2007, our performance has been strong. We have gained about one percentage point per annum in revenue market share, added 72 million customers, moved the business into operating free cash flow generation and launched Indus Towers, the world’s largest tower company, with more than 1,00,000 towers under management.”

Despite the robust growth in revenues and customer-base, the Ebitda (earnings before interest, taxes, depreciation and amortisation) margin for the Asia Pacific region (of which India is a part) fell by 2.2 per cent, primarily reflecting lower margins in India caused by the competitive pricing environment and operating investment in new circles, the company said.

Vodafone India reported a total revenue of £3.11 billion (Rs 20,500 crore) for 2009-10, against £2.69 billion a year earlier (Rs 17,700 crore), a growth of f around 15 per cent. Ebitda for the year improved to £807 million (Rs 5,315 crore) against £717 million (Rs 4.720 crore) in 2008-09, a growth of 13 per cent. Due to non-cash expenses like depreciation and amortisation, the company reported an adjusted operating loss of £37 million (Rs 244 crore) for its Indian operations. The company had reported an adjusted operating loss of £30 million (Rs 197 crore) a year earlier.

The company’s India operation was the major contributor for its growth in the Asia-Pacific region. While APAC region service revenues grew by around 9.8 per cent, the India operations reported 14.7 per cent growth. The rest of APAC grew by only 2.9 per cent.

The Group also said it had granted put options exercisable between May 8, 2010, and May 8, 2011, to members of the Essar group of companies that, if exercised, would allow the Essar group to sell its 33 per cent shareholding in Vodafone Essar to the Group for $5 billion or to sell up to $5 billion worth of Vodafone Essar shares to the Group at an independently appraised fair market value.

On the government of India’s tax claim of around $2 billion on its acquisition deal (that brought it to India in 2007), the company said it continued to seek resolution. The company had become a majority shareholder in the company through the acquisition of Hutchison Telecommunications International in 2007 for a cash deal of £5.5 billion ($11 billion at that time).

Global group revenue increased by 8.4 per cent to £44.5 billion. Group Ebitda was £14.7 billion, up 1.7 per cent. The Ebitda margin declined in line with expectations, the company said. On a consolidated basis, the group’s net profits more than doubled to £8.62 billion against £3.08 billion in 2008-09.

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