Copyright 2016, Forbesindia.com

Vodafone India operating profit up 4.1% in FY16

Telco's turnover for the fiscal was impacted by regulatory decisions; company says it is preparing for an IPO


Vodafone India, the country’s second largest telecom operator by subscribers, reported a 4.1 percent increase in operating profit for the financial year ended March 31, 2016 to Rs 13,115 crore.

The company’s service revenue grew 5 percent to Rs 44,303 crore in a challenging year for Indian telcos from a regulatory point of view. Over the course of the last fiscal, several regulatory actions impacted the financials of India’s telecom companies. These include a reduction in interconnection charges—the amount earned on incoming calls on a mobile operator’s network—to 14 paise, from 20 paise earlier, an increase in service tax and the imposition of the Swachh Bharat cess.

Vodafone India, is a wholly-owned subsidiary of British multinational telecom company Vodafone Group Plc, and is unlisted in India. As such, the company doesn’t publicly disclose its net profit or loss.

According to Thomas Reisten, chief financial officer of Vodafone India, the aforementioned regulatory decisions taken in FY16 impacted the company’s topline by as much as five percentage points.

Though revenue and profitability remained under pressure in FY16, the company, which has a subscriber base of 198 million, managed to maintain its Ebitda (Earnings before interest, tax, depreciation and amortisation) margin at 29.5 percent for the year, roughly the same level as in FY15.

While pricing and consequently average revenue per minute earned on voice services on its network remained under pressure in 2015-16—declining 10.9 percent year-on-year to 33.2 paise—Vodafone India’s data services grew handsomely. Browsing revenue for the operator grew 45.2 percent over FY15 to Rs 8,263 crore.

Data services were buoyed by a 43.3 percent year-on-year rise in 3G and 4G subscribers at 44.8 million connections who, according to Reisten, account for 70 percent of Vodafone India’s data business. Data revenues accounted for 19.2 percent of overall service turnover for the company.

The overall average revenue per user (ARPU) declined 3.4 percent year-on-year to Rs 195 in FY16.

Commenting on a prospective initial public offering (IPO) by the company, Sunil Sood, MD and CEO of Vodafone India said that an IPO was “likely” and though the company’s board of directors was yet to give a final nod to launch the public offering of shares, the management had been asked to begin preparing for the same.

Vodafone is locked in a Rs 14,000-crore tax dispute with the Indian authorities pertaining to its acquisition of a majority stake in the business from Hutchison Whampoa in 2007. The dispute stems from the enactment of a tax law in the country with retrospective effect that made Vodafone liable to pay tax on this earlier transaction.

Sood said at a press conference on Tuesday that the tax case, which is pending arbitration, is an issue between the shareholders of the company and the Indian government and has no bearing on the profit and loss account of the telco, ruling out any adverse negative impact of the matter on Vodafone India’s IPO prospects.

The Vodafone India CEO also stated that the company was on course to launch its payments bank within the stipulated timeframe of 18 months from the date of receiving the in-principle licence from the Reserve Bank of India in August 2015.

“We want to offer financial products including international remittances, insurance, and other retail products (through the payments bank),” Sood said. “We will do this either ourselves or in partnership with a best-in-class lender,” Sood said. Vodafone India’s mobile commerce arm M-Pesa is the largest banking business correspondent in the country with 1.2 lakh authorised agents and 1.3 million active users.