Vodafone might take till 2020 to make Indian business turnaround

NEW YORK/NEW DELHI - British mobile operator Vodafone’s foray into India has been a disaster, so much so that insiders and experts have gone on record to say that it could take the firm until 2020 to make an economic profit.

According to a Wall Street Journal (WSJ) report, in 2007, Vodafone paid 5.5 billion pounds to acquire 67 percent of Hutchison Essar. In 2010, it was forced into a 2.3 billion pound write-down after regulatory changes flooded the market with an unprecedented level of competition and sparked a price war. Now, it faces a disputed tax bill and possible retrospective charges on licenses, which could amount to a monumental 500 million pounds.

Vodafone entered India with high expectations, paying 16 times earnings before interest, taxes, depreciation and amortization for its majority stake. Including the cost of 3G licences, it has invested 7.2 billion pounds in the country to date.

It is committed itself to a further 3.1 billion pounds for the final 33 percent of the Indian business if Essar Group decides to sell its stake before May.

With the bill rising. India is chasing Vodafone for 1.6 billion pounds in tax charges which the mobile operator is contesting.

If it decides to impose additional charges for 2008 licenses, the market puts Vodafone’s likely bill at 500 million pounds.

Vodafone insists it is committed to India, but the best it can promise now is that it will cover its cost of capital sometime before 2020-and that distant target assumes double-digit revenue growth as mobile penetration and data use rises, market consolidation, and capital expenditure falling to midteens as a percentage of sales.

The Indian unit delivered 48 percent revenue growth in 2009 and still booked an operating loss.

Capital expenditure is currently almost 30 percent of sales, with a scheduled 3G rollout next year maintaining pressure on investment. Regulation remains highly uncertain and market consolidation some way off. (ANI)