In an interesting turn of events, UK-based Telecoms Group Vodafone has recorded non-cash impairment charge of 5.0 billion euros during the first half of the fiscal ended September 30 in respect for its Indian unit. An increased competition due to the entry of Mukesh Ambani-led Reliance Jio Infocomm has resulted in this write-off, the company said.
In a statement, Vodafone Group said that the entry of Reliance Jio has entry with commercial price plans at a significant discount to prevailing market pricing is resulting in competitive responses from other operators, which has created a high degree of uncertainty over a range of commercial planning assumptions including future pricing, profitability and market structure.
“There are a wide range of potential outcomes which the group has had to assess to derive its current view of future business performance and cash flows for impairment valuation purposes. To the extent that future commercial outcomes are different to those assumed within our plan, this valuation may need to be revised,” Vodafone said on the impairment charges.
“Competition in has increased in the year, reducing revenue growth and profitability. We have responded to this changing competitive environment by strengthening our data and voice commercial offers and by focusing our participation in the recent spectrum auction on acquiring frequencies in the more successful and profitable areas of the country,” Vodafone Group Chief Executive Vittorio Colao said in a statement.
During the six months ended 30 September 2016, Vodafone recorded impairment charge of 6.37 billion euros in respect of the Group’s investment in India which, together with the recognition of an associated 1.37 billion euros deferred tax asset, led to an overall 5.0 billion euros reduction in the carrying value of Vodafone India, the telco said.
Furthermore, the telecom group has also deferred its IPO of India unit, and said that the IPO is unlikely to take place during the current financial year due to the market conditions.