After all the hype surrounding the Verizon Wireless deal has calmed down, Vodafone (LSE: VOD) (NASDAQ: VOD.US) seems to be left with vast operations in Europe (including recent acquisition Kabel Deutschland) and India, as well as smaller businesses in other parts of the world and a stake in Verizon Communications.
However, India and Europe are likely to be the key territories for Vodafone as it seeks to deliver top and bottom-line growth in future.
Of course, the difficulties faced by Europe are well documented, but the current problems experienced in India are perhaps less widely publicised.
Indeed, investors have been disappointed with the Indian economy for over a year, with growth having halved in the last three years to an annualised rate of 4.8% in the first quarter of 2013.
Furthermore, India’s current account deficit has reached 4.8% of GDP in the year to March 2013, with the Rupee being severely weakened in the meantime.
As if this wasn’t enough, Vodafone is still in the midst of a long and costly legal battle with the Indian government regarding tax that it allegedly owes. This dispute has been going on for some time and, although there are now rumours of a potential agreement being discussed, it may drag on for a while yet.
So, the situation in India is far from attractive for Vodafone at present.
Of course, this is not the only reason why I am bearish on the shares. I still feel that Vodafone is selling the ‘crown jewel’; the one part of the business that is delivering high returns on a consistent basis. Although a stake in Verizon Communications is reasonably attractive, the Wireless part of the business offers more growth potential, in my view, than the Communications part.
Indeed, growth prospects for Vodafone are not particularly encouraging. Earnings per share are expected to grow by just 1% in 2013 and 7% in 2014, which is little more than nominal GDP growth on an annualised basis.
So, I’m clearly not keen on the idea of buying shares in Vodafone, with it being exposed to markets that, in my view, are not particularly attractive at the moment. In addition, the best part of the business is, in my opinion, being sold and the future may not provide much in the way of earnings growth with Verizon Wireless out of the picture.