Vodafone's stake buyout a fillip to India arm value

British telecom giant Vodafone on Monday received approval from the Foreign Investment Promotion Board to increase its stake to 100 per cent from 64.38 per cent at present.

However, it will have to get a final go-ahead from the Cabinet Committee on Economic Affairs to conclude the Rs 10,141-crore transaction.

Analysts say the transaction is likely to boost investor confidence in the sector, as this is the first big investment after the Union government decided to allow 100 per cent foreign direct investment (FDI) in telecom.

They also indicate a “reasonably good” appreciation in the company’s valuation. Said an analyst with a management consulting firm: “This may not be a benchmark for valuation. But it establishes the fact that valuation of telecom firms in India are actually appreciating.”

The Ajay Piramal-led Piramal Enterprises, which has a 10.97 per cent direct equity holding in Vodafone India, will get Rs 8,900 crore, a premium of about 51 per cent for its stake, more than double of what it had expected (reportedly 17-20 per cent). Piramal had invested Rs 5,900 crore to take 10.97 per cent in Vodafone India in two tranches. While Piramal Enterprises had invested an average Rs 537.83 a share for its stake, it is selling that at Rs 811.30 a share.

Piramal had first bought about 5.47 per cent stake for Rs 2,893 crore in 2011. In February 2012, it bought 5.5 per cent more for Rs 3,007 crore. In the process, Vodafone India’s valuation rose 48 per cent since February 2012, when Piramal Enterprises took 5.5 per cent in Vodafone India for Rs 3,007 crore.

Vodafone India is now valued at Rs 81,130 crore, 42 per cent higher than the Rs 57,000-crore Vodafone had paid Hutch in 2007 to buy a 67 per cent stake in the company.