CRISIL’s ratings on the bank facilities of Vodafone Essar Ltd (VEL) continue to reflect VEL’s favourable market position in the Indian wireless telecommunication industry, and improving operating efficiency and scale of operations, which will partially offset the pressure on margins in the current declining tariff environment. The ratings also factor in CRISIL’s expectation of need-based support to VEL from Vodafone Group Plc (Vodafone, rated ‘A-/Negative/A-2’ by Standard & Poor’s), the largest shareholder group of VEL. These rating strengths are partially offset by VEL’s exposure to intensifying competition because of its entry into new service areas, entry of new players in its established service areas, and its leveraged capital structure.

For arriving at its ratings, CRISIL has combined the business and financial risk profiles of VEL and VEL’s mobile operating subsidiaries because they are in the same line of business and are under a common management.

Outlook: Negative
CRISIL’s outlook on VEL is partly based on S&P’s outlook on Vodafone. The CRISIL outlook also factors in intensified competition in the telecom industry, which could lead to weakening in the business and financial risk profiles of VEL. The rating could be downgraded in case of a rating downgrade by S&P on Vodafone. CRISIL could also downgrade its ratings if VEL’s business and financial risk profiles are materially affected by the intense competition or regulatory or policy changes, or higher than expected debt-funded investments. The rating could also be downgraded in case of crystallisation on VEL’s books of an income tax liability arising from Vodafone’s stake acquisition in VEL. Conversely, the outlook could be revised to ‘Stable’ in case of a significant and sustainable improvement in VEL’s capital structure and if the outlook on Vodafone is revised to ‘Stable’.

About the Company
VEL is a leading Indian mobile operator. Vodafone holds about 52 per cent of VEL’s equity and has options over companies that own a further 15 per cent; these options can only be exercised in accordance with the Indian law. Essar group companies hold about 33 per cent in VEL. VEL had 82.8 million subscribers as on September 30, 2009, representing 17.8 per cent of India’s mobile phone subscriber base. VEL operates in all the 23 service areas.

About Vodafone
Vodafone is the world’s leading international mobile communications group, with operations in 30 countries and over 303 million customers at the end of March 2009, and with over 40 partner networks worldwide. For the year ended March 31, 2009, Vodafone reported an operating profit of GBP5.9 billion on revenues of GBP41 billion. For the half year ended September 30, 2009, Vodafone reported a PAT of GBP4.8 billion on a total income of GBP21.76 billion, as against a PAT of GBP2.2 billion on a total income of GBP19.90 billion for the corresponding period in the previous year.