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Sarin eyes 14% returns from India

Vodafone is expected to earn 14% IRR after a $11 billion acquisition of a 67% stake in Hutch, reports Indulal PM.

india Updated: Feb 18, 2007 23:07 IST
Indulal PM

This must be Arun Sarin’s trump card to retain investors’ confidence. The CEO of the world’s largest telecom company, Vodafone Plc, has assured investors that the company would get around 14 per cent Internal Rate of Return (IRR)after five years from India following the proposed $11 billion acquisition of the proposed 67 per cent stake in India’s largest service provider Hutchison Essar. Vodafone has also announced another $2 billion for the network and infrastructure expansion of the company.

According to Sarin’s presentation at the GSM conference in Barcelona earlier this week, the acquisition would increase Vodafone exposure to high growth emerging markets while the proportion of EBITDA (earnings before interest, tax, depreciation and amortisation) from the Eastern Europe, Middle East, Africa, Asia Pacific and Affiliates region was expected to increase from below 20 per cent in FY 07 to over a third by FY-12.

"ROIC (Return on Investment Capital) test met in year five and Internal Risk of Return would be around 14 per cent,” according to his presentation at the conference.

"IRR is the rate of growth that a project is expected to generate, while ROIC is a calculation used to assess a company’s potential to be a quality investment by determining how well the management is able to allocate capital into its operations.

Sarin assured investors that the group is committed for the longer-term targeted dividend payout of 60 per cent of adjusted EPS (earnings per share).

The group is broadly neutral to adjusted EPS in the first year post acquisition and accretive after excluding the impact of intangible asset amortisation for the transaction. The acquisition will benefit the group around 1.5 percentage points accretive to group three year revenue and EBITDA and CAGR, he said.

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First Published: Feb 18, 2007 22:58 IST