Piramal buys stake in Vodafone; valuation up by 4% in a day

Indian-based Piramal Healthcare announced its interest in buying a 5.5 percent stake in UK-based telecom major Vodafone’s Indian JV – Vodafone Essar, India’s third largest mobile operator according to subscriber numbers, for US$640 million.
This news comes barely a month after Vodafone bought out its Indian partner, Essar’s stake in the JV for US$5.46 billion, providing Essar with a long-awaited exit door, and making Vodafone a majority shareholder with a 75.35 percent stake in the Indian telecom space. Seeing as this state of affairs violates the Indian government’s FDI limit of 74 percent for a foreign stake in an Indian venture, Vodafone said that it was looking for Indian partners to transfer a 1.35 percent stake in the JV, so as to remain compliant with the telecom norms.
The transaction contemplates various exit mechanisms for Piramal, including both participation in a potential initial public offering of VEL and a sale of its stake to Vodafone,” Vodafone said in a statement.
Earlier this year, Vodafone had objected to Essar’s plans to transfer an 11 percent stake to another listed group firm India Securities. The choice of Piramal in the face of other suitors is unknown, but a few statistics on how both companies are doing at this point of time, may provide some clarity.
Vodafone Essar is currently valued at US$11.6 billion, with a subscriber base of 141.52 million at the end of June.
According to the deal, Vodafone’s stake in India has been devalued, in terms of enterprise value, considering the fact that a month ago, before the Ruia’s exited the JV, Vodafone Essar’s valuation was pegged at US$16.5 billion. Vodafone’s deadline for finding an Indian investor was February 15, 2012, when the final payment of US$1.26 billion for the 11 percent transfer of shares from Essar to Vodafone would be completed, thereby rendering Vodafone  majority player.
Piramal Healthcare today holds the top enterprise valuation in the pharma sector, with an estimated EBITDA ratio of 28.32 for the next 12 months. In Q4, 2011,
Piramal’s revenues stood at Rs 689 crore, up 62 percent and its net profit for the quarter stood at Rs 202 crore. Piramal earned Rs 17,000 crore for its domestic branded medicines unit sale to US firm Abbott Laboratories in September 2010. In July 2010, Piramal Healthcare also sold its diagnostic services unit to India’s Super Religare Labs for about $132.6 million. With the funds earned from these sales, Piramal has investments chalked out to the tune of Rs 7,300 crore for the pharma sector, in the offing. The decision to enter the telecom sector, was supposedly to offer better returns to Piramal’s shareholders for the surplus funds.

For the 5.5 percent stake in the telecom JV with Vodafone, Piramal is looking at returns of about 20 percent, from the Vodafone IPO that is expected in the next 12-24 months. The actual JV will be finalized by February 2012. However, Ajay Piramal, chairman of Piramal Healthcare has not ruled out selling their telecom stake to a third party in case the IPO does not pan out. Post the announcement of Piramal buying a stake in Vodafone Essar, the telecom operators’ valuation rose to $15.8 billion in a day. 

By Beryl M
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