Piramal sells Vodafone stake for Rs 8,900 crore

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UK firm takes full control of Indian operation

Diversified conglomerate Piramal Enterprises has agreed to sell its entire 11 per cent stake in Vodafone India to Prime Metals, an indirect subsidiary of Vodafone, for Rs 8,900 crore.

With this deal, Vodafone will become the first foreign telecom company to take full control of an Indian operator as Vodafone group has already concluded purchase of Analjit Singh's 24.65 per cent stake.

India accounts for about 10 per cent of the Vodafone group's revenue, biggest customer base and the most minutes of use.

Piramal Enterprises sold 45,425,328 Vodafone shares to Prime Metals at Rs 1,960 per share, earning 19 per cent return on its Rs 5,864 crore investment as the rupee depreciated in the last three years, a company spokes-person said.

Vodafone is expected to issue a statement on the deal on Friday. After the announcement, shares of Piramal Enterprises gained 3.7 per cent in Mumbai trading on Thursday to close at Rs 556.15, the highest level since January 22. During the day, the scrip had surged 7.63 per cent to Rs 577.10. On the National Stock Exchange, the company shares gained 2.15 per cent to close at Rs 549.50.

The Piramal group, which evolved from textiles to pharmaceuticals and then diversified into glass and real estate, had bought Vodafone India stocks at an average price of Rs 1,290 per share during 2011-12, when the rupee was quoting at 48-50 against the dollar. The domestic currency has since depreciated to the 60 level.

Ajay Piramal, chairman of Piramal group, said, "The equity purchase in Vodafone was consistent with our objective of making investments that offer opportunity to generate attractive long-term return on equity. I am glad to say that we have delivered against our targeted returns with this investment."

The Piramal group bought into Vodafone, when the UK firm was looking for an Indian company to share the 33 per cent stake that Essar had held in Vodafone Essar, as Indian regulations did not allow foreign companies to hold more than 74 per cent in domestic telecom firms.

Piramal bought the stake with investment tenure of three to five years targeting an internal rate of return of 19-20 per cent. It bought 5.5 per cent stake from Essar Telecom for Rs 2,856 crore in the first tranche in August 2011 and another 5.5 per cent from Vodafone India for Rs 3,008 crore in February 2012, taking its total investment to Rs 5,864 crore.

When the government removed the 74 per cent cap on foreign stakes in telecom in July 2013, Vodafone moved swiftly and in October 2013 announced the plan to take full control of the India unit by buying out the minority partners — Piramal, Analjit Singh, the non-executive chairman of the Indian unit, IDFC and others — for Rs 10,141 crore.

The government approved the plan in February. Piramal had already planned an exit during Vodafone's proposed initial public offering. But the IPO got stuck due to Vodafone's Rs 12,000 crore tax disputes over its purchase of Hutchison Whampoa's assets in India. The issue is yet to be resolved.

Vodafone chief executive officer Vittorio Colao said in November that the company would consider the IPO once the tax disputes are resolved. AK Prabhakar, senior advisor to Anand Rathi, said the Piramal group had become adept at identifying real value of assets and entering and exiting at right time. “Their sell-off of the healthcare business to

Abbott is a good example of that and now the Vodafone exit at an IRR of 19 per cent proves their skill. They have built similar assets in real estate and could see some really good exits in the days to come.” In 2010, the Piramal group sold its branded-generic drug business to Abbott Laboratories for $3.72 billion.

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