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| India-gestion |
| Una Galani / May 19, 2010, 00:29 IST |
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Vodafone: Vodafone’s ambitious jaunt to India has left it with a bad case of Delhi belly. The UK telecom operator is taking a £2.3 billion impairment charge after gobbling up a share of the Indian mobile market by acquisition in 2007. Vodafone hopes to mitigate shareholders’ discomfort with a pledge to grow the dividend by 7 percent each year until 2013. But that is poor compensation for continued disappointment in this key growth market.
The dividend commitment isn’t that impressive. Vodafone’s similarly sized Spanish rival Telefonica has promised investors a 21 percent increase to its dividend in 2010, compared to the previous year, and pledged further increases until 2012. Even UK fixed-line operator BT, a mature business with a vast pension deficit, last week indicated it could sustain dividend growth at 6 percent.
Sure, Vodafone's chief executive of 22 months, Vittorio Colao, deserves praise for a 27 per cent increase to free cash flow to £7.2 billion in the financial year to March. He cut costs but maintained capital expenditure. The achievement lends credence to new targets for £6-7 billion of free cash flow in each of the next three years. If Vodafone’s US mobile joint venture Verizon Wireless resumes dividends, the goal should be comfortably met. Prolific cash generation shows the power of Vodafone's more mature businesses. The question is where future growth will come from. The Indian government’s distribution of six additional mobile licences following Vodafone’s entry into the market has created an overcrowded marketplace. There is no sign of any let-up. Bids for a national third-generation licence are now almost twice analysts' highest expectations.
Vodafone has had problems in emerging markets before, for example in Turkey. But the challenges in India are regulatory, rather than of Vodafone's own making, and may be harder to remedy. Proposals from India’s telecom regulator to levy retrospective charges on second generation licences and continued curbs on consolidation suggest things could get worse before they get better. Vodafone’s near-20 per cent discount to the sector provides plenty of upside if the situation eases. But there is little sign of that yet.
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