"The equity purchase in Vodafone was consistent with our objective of making investments that offer opportunity to generate attractive long-term return on equity," said Piramal Group chairman Ajay Piramal in a statement following the deal.
Piramal, one of India Inc's savviest deal-makers, said on Thursday that he had divested an 11% stake in Vodafone India held by Piramal Enterprises for Rs 8,900 crore, pocketing a neat return of nearly 52% in a little over two years. On the other hand, Max Healthcare founder Singh got Rs 1,241 crore for his nearly 4.5% stake in the telco in a transaction which was done last month.
Post this development, Vodafone India will become a wholly-owned subsidiary of the British telecom major. The move comes after the Indian government allowed 100% foreign direct investment in the telecoms sector last year. Prior to this deal, Vodafone has invested Rs 55,000 crore since the time it entered India 2007.
Piramal Enterprises said it will sell its entire equity stake comprising 45,425,328 shares in Vodafone India to Prime Metals, an indirect subsidiary of Vodafone Group Plc. The deal values the telecom company at Rs 1,960 per share. The Piramal's flagship company picked up an 11% stake in two tranches, in August 2011 and February 2012, paying a total of Rs 5,864 crore or Rs 1,290 per share."The equity purchase in Vodafone was consistent with our objective of making investments that offer opportunity to generate attractive long-term return on equity," said Piramal Group chairman Ajay Piramal in a statement following the deal.
Significantly, the huge difference in the valuation of Piramal's stake and that of Singh's was attributed to the fact that Singh's holdings were through various companies, some of which had significant debts. In a joint statement post the Foreign Investment Promotion Board (FIPB) clearance last year, Vodafone and Singh had said, "The valuation of his (Singh's) stake in Vodafone India will have to take debt into consideration as well as the fact that the holdings are indirect unlike Piramal Enterprises' direct interest in Vodafone. The consideration payable to Singh is consistent with the agreements signed between him and Vodafone, which were filed with the FIPB in 2007 and 2009."
India's second largest mobile operator by subscriber numbers and revenues was given clearance by the FIPB in December last year and later got a Cabinet nod in February to acquire shares from its minority shareholders Piramal Enterprises and Singh, a non-executive chairman at Vodafone, for over Rs 10,000 crore to raise its holding in the Indian unit to 100%. Before accounting for these two transactions, Vodafone Plc held 84.5 % directly and indirectly in Vodafone India.
"I am glad to say that we have delivered against our targeted returns with this investment," Piramal said on Thursday. At the time of acquisition, he had said that he expected a pre-tax return of 17%-20% per annum on the investment. Piramal Enterprises would make an exit from Vodafone either through a proposed IPO of the telco, or sell its stake to another company or to Vodafone itself, he had said earlier.
The "strategic stake'' was acquired for "value creation" when Piramal wanted to park the surplus funds of $3.72 billion after selling the domestic formulations business to Abbott in 2010.
"This reconfirms Vodafone's commitment to India. We cannot judge much from the valuation of this transaction since it is subject to specifics, but the sector today shows more stability on the regulatory and business front than in the past two to three years, more investor confidence and a position for better growth," said Mohammad Chowdhury, telecom, media & technology industry leader at PricewaterhouseCoopers India.
Vodafone India has a revenue market share of 21.6%, while industry leader Bharti Airtel boasts of a 29% share. The British operator is flush with funds after concluding the sale of its 45% stake in US telecom carrier Verizon Wireless for $130 billion. Its CEO, Vittorio Colao, has been divesting minority stakes and joint ventures globally as it focuses on the Asian and African market for growth potential.
In 2007, Vodafone spent $11.1 billion to acquire a 67% stake in Hutchison Whampoa's Indian assets and then got Essar to offload its 33% shares for almost $5 billion in 2011. Vodafone Essar has existed in various forms since the mid-90s, when it started operations as Max Touch. It has since metamorphosed through various avatars and was renamed first as Orange and subsequently as Hutch, before Vodafone took a controlling stake. For the quarter ended December 31, 2013, Vodafone India's revenue grew by 13.2% year-on-year. This was driven by continued customer growth, higher voice usage and improved voice pricing, the operator said.
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