I-T department asks Vodafone to pay Rs11,218 crore within 30 days

New Delhi: The government today asked Vodafone to pay about Rs11,218 crore in taxes for the purchase of Hutchison Whampoa Ltd's mobile business in the country in 2007. The payment is to be made within a month, PTI reports.

"The I-T department today issued an order raising a tax demand of Rs11,217.95 crore on Vodafone International Holdings BV, treating it as an assessee in default... for failure to deduct tax as required before making a payment of $11,076 million (about Rs55,000 crore) to Hutchison Telecommunication International Ltd," the department said in a statement.

The Supreme Court had asked the tax department to determine by 25 October the tax liability over the deal. The Court is expected to set a date on October 25 to hear Vodafone's appeal challenging a lower court ruling that Indian tax authorities had jurisdiction on tax payments in cross-border deals. Vodafone had bought Hutchison's stake in the Hutchison-Essar mobile services joint venture in India.


Earnings analysis: Bajaj Auto Q2, HCL Tech Q1


Net sales: Rs43.42 billion (expected range Rs41.20 billion-Rs43.22 billion)
Net profit: Rs6.82 billion (expected range Rs6.32 billion-Rs7 billion)


  • Both sales and net profit were at the higher end of the estimated range.
  • As expected, realisations were good (better than expected) because of better product mix with higher proportion of three-wheelers and the price increase it took in the quarter.
  • Better realisations and lower raw-material to sales ratio led to a sequential improvement in margins.
  •  Demand for its bikes is good. Its Discover-150CC is out of stock at the dealer level. The Pantnagar plant, where production capacity is set to increase to 1.8 million by FY11 end (from 1.2 million in FY10 end) will bring in benefits. Export demand is good. Removal of licenses in Chennai has boosted three-wheeler demand in the city.
  •  It is possible that Pantnagar will contribute to 37% of output in FY12 from 28% in FY11 - this will provide a margin buffer.
  •  Cash at the end of the quarter was Rs1.9 billion; total net cash and investments were Rs47.8 billion, up by Rs4.8 billion from FY2010.
  • Receivables were up by Rs8 billion; the company said this was because of inventory build-up ahead of the festive season.
  • Consensus building that Bajaj Auto will benefit because of Hero Honda's challenging transition phase.


Net sales: Rs36.12 billion (expected range Rs34.96 billion-Rs36.40 billion)
Net profit: Rs2.99 billion (expected range Rs2.78 billion-Rs3.39 billion)


  • Revenue growth of 9% q-o-q was great but the fall in margins and decreasing cash flow are major worries now.
  •  Free cash flow was negative at $27 million.
  •  This is because of HCL Tech's strategy of gaining market share through aggressive pricing and getting into asset heavy deals (leading to cash-flow erosion).
  • However, its deal pipeline remains strong and revenue growth is likely to continue at this pace. 
  •  Growth in America was weak (+2.8% q-o-q) but it was compensated by strong growth in Europe (+18%) and Asia Pacific (+20%).
  •  Forex losses may moderate going forward as the hedge book reduces. Outstanding hedge book is $300 million now.
  •  The BPO business reported a revenue growth after three quarters, but a turnaround seems a long way off.
  • Analysts have not taken HCL's decision to report numbers using the quarter's average currency rates (against end rates earlier) - this is seen as window dressing.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).


HC rejects microfinance industry petition to quash ordinance

Hyderabad: The Andhra Pradesh High Court today rejected petitions by the microfinance (MF) industry to quash an ordinance which, they claimed, curbed their freedom, and asked MF institutions (MFIs) to carry on their business in compliance with the new rules.

The Court directed the institutions to register themselves with the government within a week, as mandated in the ordinance. The petitions were filed by Microfinance Institutions Network (MFIN), SKS Microfinance and Spandana Microfinance, PTI reports. They contended that the state was encroaching into an area already regulated by the Reserve Bank of India Act and other central laws.

A division bench of Chief Justice Nisar Ahmad Kakru and Justice Vilas V Afzalpurkar said that the companies can carry out day-to-day activities, and that the government could book cases in the event of violation of sections 9 and 16 of the Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Ordinance 2010. The ordinance was promulgated last week.

Under section 9 of the ordinance, MFIs are barred from charging interest in excess of the principal amount, irrespective of whether the loan was given out before or after commencement of the ordinance. According to section 16, all persons connected with and responsible for the day-to-day control, business and management of an MFI, including partners, directors and employees who resort to any type of coercive measures against self-help groups, group members or their family members, shall be liable for punishment with imprisonment which may extend up to three years, or a fine which may extend to Rs1 lakh, or both.

P Niroop Reddy, counsel for MFIN, said that the court had also directed the government not to arrest loan recovery officials of the company when they go for collections. Last night, three employees of SKS Microfinance and Spandana were arrested on a complaint of harassment by a borrower.

"After investigation, we came to know that the recovery officials were acting under the instructions of their company management. So under the new ordinance, Vikram Akula (founder and chairman of SKS Microfinance) and Padmaja Reddy (promoter of Spandana Microfinance) may also be included in the case," CH Srikanth, superintendent of police (Kurnool) told PTI.


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