Vodafone fortune looks all set to turn around in India. The Indian arm of Vodafone Group Plc, the world's largest private mobile-phone company, has recorded profits for the first time. In the recent years, it has faced a flurry of issues in India including the tax payment to Indian authorities, difference with partner Essar and dipping margins in the fastest growing telecom market in the world.
Vodafone Essar posted a 134% jump in operating profit to £15 mn for the 12 months ended March '11. For the corresponding period last year the loss was £37 mn. Not only the profits have improved but operating-free cash flow has touched an all time high of £433 mn for the 12 months ended March'11. Sales have jumped 16% during the period to £3,855 mn. Revenues for the three months ended March '11 were up 17.2% to £988 mn compared with the quarter ended March '10.
EBIDTA (Earnings before interest, tax, depreciation and amortization) were up by 15.1% to £985 mn for the year ended March '11, driven by the increase in customer base and economies of scale, which absorbed pricing and cost pressures, the company said.
Vodafone had a very sensible approach to doing business in the BRIC countries. As part of its strategy it has been slimming down its portfolio in some geographical domains, and recent stake sell in China and Japan are example of this. India has figured prominently into Vodafone’s operation with 80% of the 12.9 mn customers added globally being in India during the three months ended March '11.
Vodafone entered India in 2007 when it acquired an economic interest of 67% in the asset from Hutchison for $11.1 bn. Post this; Vodafone has invested an additional $7 bn in its Indian operations. Recently Vodafone announced to buy the Essar share by paying $ 5 bn in cash to acquire one-third stake in its Indian JV ending months of conflict between the two partners.
Vodafone also plans to list its Indian operations by the year-end, if the company wins the $2.6 bn tax case over its $11.2 bn purchase of Hutchison Telecom's operations here in 2007. India's apex court is slated to hear Vodafone's appeal challenging the jurisdiction of the income tax department to impose capital gains tax on its 2007 deal in July 19, 2011.
The company has been topping the customer addition charts for the last two months, finished 2011 fiscal with 135 mn customers and had established clear leadership in attracting customers via the mobile number portability route. Early analytics show that Vodafone has been benefitted most by mobile number portability.
Last year Vodafone's Indian arm had faced the heat with tariff war impacting the profit. While announcing its financials for year-ended March 10, Vodafone said it had cut the value of its Indian arm by $3.2 bn (Rs 14,600 cr) because of a price war triggered by stiff competition and future payments for spectrum.
While its India performance was upbeat, the British mobile phone giant's annual net profits slid by almost 8% on account of on a huge impairment charge in debt-ravaged nations across southern Europe.
Despite the turnaround in Indian operation, the challenges are multi fold for Vodafone. The decision on tax payment in Hutch deal is going to decide the fate of further investment by the company in India.
Vodafone’s performance in India also signals the need for UK companies to broad base their operation in India. Earlier Standard Chartered also posted its one of the best profits in India ever. The time has come for UK companies to realize that they need to expand their foothold in emerging markets quickly to leverage the existent growth momentum.
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