Vodafone Buys Remaining Stake in India - Analyst Blog

UK-based Vodafone Group plc VOD has reportedly announced the purchase of an 11% stake in Vodafone India from minority partner Piramal Enterprises Ltd. According to Bloomberg, the deal was settled for 89 billion rupees ($1.5 billion), resulting in the full takeover of Vodafone India.

According to reports, the company had earlier purchased the 4.5% stake retained by non-executive chairman of Vodafone India, Analjit Singh. This gives Vodafone Group complete hold over its Indian subsidiary.

The sale of stake in Verizon Wireless of Verizon Communications Inc. VZ for $130 billion increased Vodafone's focus on emerging markets like India. The company is not only increasing its investment but has also entered into various acquisition deals to strengthen its market penetration in India. Aside from Vodafone India's stake purchase, the company is also rumoured to be in talks to buy Indian broadband and telecommunication company, Tata Teleservices Ltd.

Vodafone has consistently proven its proactive approach to Indian operations. The company registered 4.9 million net customer additions in the fourth quarter, resulting in 160 million customers that represent 38% of its total customer base.

With increasing number of customers seeking data services, strong marketing campaign and flexible price plans, Vodafone expects continued growth in the sub-continent. Further, the company views India as a bankable target market with 700 million untapped customers in mobile financial services.

 In a visit to India last year, CEO Vittorio Colao highlighted the company's $3 billion investment plan over the next two years for telecom infrastructural development in the country.

We believe the new rules set by Indian authorities in August to beef up foreign direct investment into the country has opened doors for multinational telcos like Vodafone for expanding in a big way and gain complete ownership in incumbent companies that was previously capped at 74%. Further, new and easy policies in India related to spectrum, merger and acquisitions as well as auctions remain attractive for foreign telecom companies to invest in the prospective region.

Taking advantage of the new rule, Vodafone is aggressively trying to be the country's numero uno carrier by acquiring smaller players. Further, rating agency Fitch upgraded its outlook on the Indian telecom sector last year and highlighted industry consolidation, with large companies taking over smaller counterparts. We believe Vodafone's buyout plan is in concurrence with this trend.

Vodafone currently has a Zacks Rank #5 (Strong Sell).

Other Stocks

Other stocks that can be considered in the telecom sector include SK Telecom Co. Ltd. SKM and Shenandoah Telecommunications Co. SHEN. Both stocks carry a Zacks Rank #1 (Strong Buy).