Piramal Healthcare on Friday added
5.5% stake to Vodafone India to take its total shareholding in the telecom
major to 11%. Now, Piramal’s total investment in Vodafone i.e. telecom business
stands at Rs5870 crore. Considering this to be almost equivalent to a third of
the sale proceeds to Abbot, I wanted to estimate how much is Vodafone actually
worth (Neglecting the effect Supreme court ruling cancelling 2G licenses issued
in 2008 could have on its value).
Data used for the relative
valuation is taken from Vodafone Plc’s half yearly numbers, wherein Sales and
EBITDA of India operations was given. As for comparison, MarketCapitalization/Sales
and EV/EBITDA are considered. The comparable companies which have been taken
for this are Airtel, Idea, RComm and Tata Teleservices (TTML). The values for
the multiples as on 25th Jan 2012 were:
|
EV/EBITDA
|
Mkt Cap/Sales
|
|
|
Airtel
|
11.13
|
3.57
|
|
Idea
|
10.79
|
1.45
|
|
Rcomm
|
31.54
|
1.67
|
|
Tata Tele
|
6.78
|
1.44
|
|
Average
|
9.57*
|
2.03
|
For EV/EBITDA calculations, RComm’s
value is not taken, as it is disproportionately large. For MarketCap/Sales, all
values are taken. Based upon these multiples and the annualised sales and
EBITDA for this year based on H1 figures, we find the value of Vodafone as
shown below:
|
All figures in Crore
|
Rs Crore
|
Value
|
Value of
11% stake
|
|
Sales
|
33109.88
|
67295.83
|
7402.541
|
|
EBITDA
|
8367.4
|
80048.13
|
8805.294
|
So, the average valuation (based
upon the multiples) indicates Piramal Healthcare received a discount close to 27.6%
through the two deals.
Another indicator that may be
used to judge the value of Vodafone India is Essar’s stake sale to Vodafone.
Last October, when Essar exercised its option to sell its 22% stake to Vodafone
for $3.3bn, it valued the company at $15bn. Similarly, based upon our multiples
valuation, the value of Vodafone comes out to be around $14.7bn (average of the
two values obtained). On the other hand, Piramal’s 11% investment in Vodafone
for Rs5867 crore values the company at $10.66bn, which is at 28.9% discount to
the Vodafone deal. Moreover the EBITDA of Vodafone India is growing at around 14%.
Based upon these valuations, it
seems Piramal Healthcare got a good deal for the Vodafone Investment.
Can u please provide me a valuation Excel for Parabolic Drugs
ReplyDeleteNice analysis, but do remember that Piramal Healthcare has a put option with an assured IRR. So that way, the transaction could be more like debt than equity, since Vodafone needed an Indian investor to take equity till the IPO of the Indian arm. Btw nice sub title for the blog 'my experiments with finance'!
ReplyDeleteI understand that Piramal Healthcare has put options but the strike price at which they would be exercised is unknown (atleast I could not find one). This guarantees a minimum return from the investment. But another exit strategy for them is also through an IPO. For this, the valuation becomes more of "equity" rather than debt and the return can be more than that guaranteed by the put option.
ReplyDeleteMoreover, I have also not included (neglected) the value of the put options, which was part of the deal. If the same is included, the value paid for the equity would further decrease owing to the put option value inbuilt in the deal. i.e. Rs 5870 crore includes 11% stake and a put option on the 11% stake, I have neglected the latter.
But thanks for pointing that out, I should have included these assumptions in the post :)
BTW thanks for the for the complements on the sub-title :)