Reliance Jio’s entry: Vodafone takes EUR 5 bln charge on India biz; defers IPO

Vodafone Group on Tuesday said that it has recorded non-cash impairment charge of 5.0 billion euros during the six months ended September 30 in respect of its investment in India due to increased competition driven by Reliance Jio Infocomm’s entry.

Vodafone also added that IPO of Vodafone India is unlikely to take place during the current financial year due to the market conditions.

The UK telecom major said that the impairment charge was driven by lower projected cash flows within the business plans resulting from our reassessment of expected future business performance following the recent change in competitive dynamics.

“During the six months ended 30 September 2016, an impairment charge of €6,375 million was recorded in respect of the Group’s investment in India which, together with the recognition of an associated €1,375 million deferred tax asset, led to an overall €5.0 billion reduction in the carrying value of Vodafone India,” the company said in a statement.

The UK-based telecom group said, “A new entrant has recently launched free trial services for an extended time period and commercial price plans that were at a significant discount to prevailing market pricing, resulting in competitive responses from other operators. This has created a high degree of uncertainty over a range of commercial planning assumptions including future pricing, profitability and market structure.”

Vodafone said that there are a wide range of potential outcomes which the group has had to assess to derive its current view of future business performance and cash flows for impairment valuation purposes. “To the extent that future commercial outcomes are different to those assumed within our plan, this valuation may need to be revised,” it added.

“Competition in India has increased in the year, reducing revenue growth and profitability. 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,” Vittorio Colao, Group Chief Executive, said in a statement.