Vodafone's Delhi belly will get worse

Mobile giant Vodafone announced a solid set of results this week that were overshadowed by problems in its Indian division. In the year to the end of March revenue rose by 8.5% to £44.5bn, and pre-tax profits more than doubled to £8.7bn, helped by rapid progress on cost-cutting. Vodafone expects to grow its underlying revenues again in 2010/2011 and has pledged to grow the dividend by an annual 7% over the next three years. However, the group wrote down the value of its Indian business by £2.3bn.

What the commentators said

"Growth engines are all very well until they start to sputter," said Lex in the FT. "There was back-slapping all round" in 2007 when Vodafone paid $11bn for a controlling stake in Hutchison Essar, then India's fourth-biggest operator. "How could it lose" when sector sales were growing by 50% and only 13% of the population had mobiles?

A key reason things have gone wrong is that the regulatory framework has been "as unpredictable as the arrival of the monsoon", said Joe Leahy on FT.com. Last year the government suddenly awarded six new licences for second-generation mobile services, spurring "cut-throat competition". India has 15 operators, while most countries have three or four. Things aren't getting any easier. The government is auctioning off third-generation mobile spectrum and prices have soared far beyond what analysts had pencilled in.

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To make matters worse, the government is now considering charging companies retrospectively for the second-generation spectrum allotted to them. Throw in continued curbs on consolidation and Vodafone's "Delhi belly" will get worse before it gets better, said Una Galani on Breakingiews. So Vodafone's large valuation discount to the sector may not narrow substantially any time soon.

VOD: 133p; 12m change 7%