Piramal Healthcare’s 11% Vodafone Stake – Is it worth it?

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 25^th 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

Mahindra Satyam Ltd Results – What to expect tomorrow?

Satyam came out with their Q3 results after the end of trading today. The salient points in their result are:

1. Consolidated Revenue up 34% YoY and 9% QoQ at Rs1718 Crore
2. Consolidated PAT stood at Rs 308 Crore, a rise of 29% QoQ and 424% YoY

A major point to be noted is that the pre-tax “Other Income” surged by 56.4% to Rs 151.3 crore. The EBITDA stood at increased by a relatively modest 15.1%. The EPS for Q3 was reported at Rs 2.62. The nine month EPS stood at Rs 6.56. In absence of Q4 guidance, for a back-of-the-envelope calculation, if we annualise this EPS, we get an EPS of Rs 8.75. But on the other hand, if a performance equivalent to this quarter were to come (flat QoQ growth), then the EPS for the year ending March 2012 would stand at Rs 9.18. 

Now, the IT industry average P/E multiple is around 20, while at the present annualised P/E multiple, Satyam trades at 8.7. Considering the P/E multiple based upon the H1 EPS which stood at 2.52 (Annualised value of Rs 5.04), the stock was trading at a multiple of 15. With the better results for the company in the last quarter (EPS for Q3 was greater than that of H1 combined) the stock would be trading at a far lower multiple of 9 if it does not grow tomorrow.

Hence, I would buy Satyam and set a target of Rs 100-110 (When a current P/E multiple of 12-13 would be achieved).