Vodafone has fallen nearly 2% after it ran into more problems in India.
After getting embroiled in a long standing tax inquiry, the mobile phone group has now had its offices raided on Saturday in a separate investigation into spectrum allocation by the country's previous government. The issue dates back to 2001, and another operator Bharti Airtel was also raided.
Vodafone said in a statement all its documents were in compliance with the governing laws and regulations, and it was co-operating fully with officials. The news was enough to send its shares 3.1p lower to 167.7p. Analysts at Espirito Santo said:
Vodafone has enough trouble in India with the unpaid capital gains tax case (relating to its initial purchase of Hutchison-Essar), so it can do without getting embroiled in the spectrum corruption investigations. Let's hope, then, that the police raid on its offices (and Bharti's) is simply routine and nothing more sinister. Vodafone has always protested its innocence on this issue.
Vodafone has aspirations to remain in the market for the long-term as a top three operator. For that it will need more spectrum and it will also need to consolidate other smaller players. It will therefore need the tacit support of the establishment, which already seems to be pre-disposed against foreign ownership. Therefore, it will have to keep its nose squeaky clean, which means Vodafone can do without any more investigations.
Mark James at Liberum Capital said Vodafone has spend around £12bn in India so far, with little to show for it. He said:
If you wanted an example of the uncertainty surrounding Vodafone's investments in India, look no further than today's news (of the raid). But can it get much worse?
By any measure Vodafone's returns on its Indian investments to date have been paltry. We estimate cumulative investments of around £12bn to produce cashflow returns of, erm, nil. Price wars have held back revenues and margins whilst capital expenditure has risen unabated. Couple this with an opaque regulatory regime and an ongoing spat with the Indian government, and it's not hard to see why pessimism abounds regarding Vodafone's Indian foray. Yet, we argue, there are glimmers of hope of late. Prices have gone up for the first time we can remember and the fog is lifting a little on regulation.
Vodafone is hosting an investor and analyst event next week in Mumbai, to host its Indian operations together with the African and Egyptian operations. [We expect] Vodafone's M-PESA money transfer service...to get highlighted next week. Ultimately, we expect sentiment towards Vodafone India to get better – aided by the investor event.
