Vodafone Group, the world’s largest mobile operator by revenues, is preparing for an initial public offering of its India unit, global CEO Vittorio Colao told a select editors’ round table meet on Wednesday.
“We have done preparatory work on the IPO so that we can take a decision,” Colao said. However, he declined to give an exact timeline, saying there were many factors that influence the IPO one way or another, but added that the company was positive.
Vodafone has been toying with the idea of coming out with an IPO for its India unit for quite some time but the over Rs 12,000-crore (excluding interest and penalty) capital gains tax dispute with the Indian government has been acting as an obstacle. The matter is currently under arbitration.
The Vodafone Group had in May asked investment bank Rothschild to compile a report about the benefits of a possible Vodafone India IPO, which would provide the company with cash for its India plans. The share sale will also offer investors an opportunity to reap dividends from a market where wireless growth is outpacing that of more mature countries such as Vodafone’s home market, the UK.
Analysts FE spoke to said that if Vodafone goes for an IPO it could raise around Rs 60,000-65,000 crore considering that its EV/Ebitda would be somewhere in between that of Bharti and Idea. Bharti’s EV/Ebitda is 6x while Idea’s is 7x. During FY15, Vodafone India’s Ebitda stood at Rs 12,605 crore.
The stand of the Narendra Modi government of not resorting to retrospective taxation and not challenging any high courts decisions relating to transfer pricing cases that go in favour of companies seems to have led to an improvement in overall sentiments, leading in turn to Vodafone thinking positively about its IPO. This perhaps explains Colao’s remark that the company could go for the IPO even during the pendency of the tax dispute.
The company recently won two transfer pricing case in the Bombay High Court, of which in one the government has decided not to appeal in the Supreme Court.
In the other, where the order came only last week, a final decision has not been taken but the likelihood of the government appealing against is remote.
Vodafone India, the second largest mobile operator in the country by revenues and subscriber, has so far invested around Rs 83,000 crore towards capex and spectrum and plans to start its 4G services by December this year.
Its capex in FY15 was Rs 8,500 crore, which was 37% higher than a year earlier. Close to 60% of its capex was spent on data and the company would spend a similar amount in the current fiscal also.
Analysts said the company needs to raise funds to meet future challenges of the domestic telecom market.
Vodafone’s debt stands at around R47,800 crore. Apart from outgo towards spectrum acquisition cost where it has some cash flow relief due to the deferred payment scheme, it needs to invest in rolling out 4G networks, putting up more cell sites, buying spectrum in future either in auctions or through trading and meet competitive challenges, especially with the entry of one more serious operator, Reliance Jio Infocomm.
The company’s capex every year would be in the region of Rs 8,000 crore and its focus would be on investing for strong data growth, accelerate 3G roll-out with addition of seven new 3G circles, fibre to enterprise, high-capacity fibre/backhaul to base stations, IP-fication of the network, and continue with retail expansion.