New Delhi: Vodafone Group Plc. wrote down the value of its Indian business by €5 billion (around Rs36,460 crore) on Tuesday, citing increased competition in the country’s telecom market, causing its global first-half loss to double.
The UK-based telco’s net loss surged to €5.1 billion in the six months to 30 September, compared with a net loss of €2.5 billion a year earlier.
“We recorded a non-cash impairment of €5.0 billion, net of tax, in the period relating to our Indian business. This was driven by lower projected cash flows within our business plan as a result of increased competition in the market,” Vodafone Group said in a statement.
The competitive pressures unleashed by the September launch of commercial operations by Mukesh Ambani’s Reliance Jio Infocomm Ltd has taken its toll Vodafone India—and other telcos —and have cast a cloud on its plans for an initial public offering (IPO). Jio’s offer of cheap data and free voice services has forced rivals including Vodafone to cut prices.
The aggressive pricing strategy of Jio “will lead other operators to rejig their offerings to protect their respective subscriber market share. Reduction in tariffs along with porting of subscribers to the competition will impact the profitability in the long term”, said Rishi Tejpal, an analyst at Gartner Inc.
Adjusted operating profit at Vodafone India declined 24.3% to Rs1,798.4 crore in the half year to 30 September from Rs2,375.98 crore in the year-ago period. Revenue fell to Rs22,053.8 crore from Rs22,574.59 crore
In September, Vodafone India received an infusion of Rs47,700 crore in fresh capital from its parent to fund business expansion, most of which the Indian unit used to pay debt, which now stands at Rs35,430 crore. At the end of the last financial year in March, the standalone debt of the company was Rs81,500 crore.
“Competition in India has increased in the year, reducing revenue growth and profitability,” said Vittorio Colao, chief executive of Vodafone Group. “We have responded to this changing competitive environment by strengthening our data and voice commercial offers and by focusing our participation in the recent spectrum auction on acquiring frequencies in the more successful and profitable areas of the country.”
Vodafone India has been planning to list on India’s stock exchange since 2010 but the plans have been put on hold by the parent company, citing market conditions and its performance.
“The Group intends to proceed with an IPO of Vodafone India as soon as market conditions allow. We do not expect this to take place during the current financial year,” Vodafone said in the statement.
Separately, Colao told the Financial Times that the scale of Jio’s operations in India was “unprecedented” and it is “very hard to compete with someone who gives stuff for free”.
Vodafone India currently has a 4G presence in nine out of India’s 22 telecom circles. It said it would expand to 17 circles by the end of March 2017.
“In India, following the Indian spectrum auction in October in which we increased our total spectrum holding by 62%, we now have a strong position to support our future 4G needs. We plan to extend our 4G footprint from nine to 17 circles by the end of the current financial year, covering around 91% of service revenues and 94% of our data revenues,” the company said.
At the end of September, Vodafone India had 200 million mobile customers. Despite a quarterly rise in its subscriber base, the company logged a 2% decline in voice minutes, though data usage increased by 9.8% on a quarterly basis.