Vodafone's India JV with Idea in a precarious situation, says HSBC

Global brokerage major HSBC has noted that Vodafone's joint venture (JV) in India is in a precarious situation after Vodafone's global CEO reiterated that there will be no further injection of group equity into India.

London-based analysts at HSBC said in a research note after Vodafone Group's half-yearly results announced on Tuesday that its Indian operation's condition was critical.

"The JV in India is clearly in a precarious situation following the Supreme Court's AGR-related fine," HSBC said.

It noted that the carrying value of VIL on Vodafone's balance sheet was now nil. Group cash flow guidance assumes no recharges or dividends from Indus Towers, a combined 250 million euro headwind, and the possibility that at least a portion of the 1.1 billion euro indemnity provision will be drawn on has likely risen.

"Vodafone's CEO reiterated that there will be no further injection of group equity into India," HSBC said.

Deutsche Bank said, "For the 'avoidance of doubt', the management will not deploy any additional parent capital into India (have lobbied for relief from government, Indus Towers merger awaiting regulatory approval)."

In a research report, Goldman Sachs noted that the sustainable top-line growth improvement and ongoing efficiency efforts help offset continued losses in India, and should support improving longer term returns.

Most analysts had a positive view of Vodafone results but negative commentary on India operations.

Credit Suisse said the first look for the results is encouraging.

"There were some negatives too with free cash flow (FCF) guidance lowering slightly to reflect a zero contribution from India (was 250 million euro previously) and a weak net adds performance in Germany," it said.

Morgan Stanley said that Vodafone has reported decent Q2 H1 results. Its top-line revenue growth was particularly strong, it said.

Vodafone is now targeting FCF of 5.4 billion euro -- essentially a downgrade, considering the integration of four cable assets due to lack of dividend from Indian towers and loss of NZ cash flows.

JP Morgansaid said in a note, "We believe Vodafone's shares heavily over-discount risks including balance sheet overhangs, spectrum spend uncertainty and a disrupted growth outlook across several key markets. Moreover, we expect the group to take further steps to address these strategic risks over the next 12 months."