Vodafone (VOD) Group Plc. will buy out Piramal Enterprises Ltd. (PIEL)’s stake in its India mobile-phone unit for 89 billion rupees ($1.5 billion), giving it full control of its biggest market by customers.
The deal for about 11 percent of Vodafone India values the company at 1,960 rupees a share, Piramal said in a statement today. That represents a more than 50 percent increase from the price the Mumbai-based drugmaker paid. Vodafone said the Piramal sale follows the purchase of the 4.5 percent stake held by Vodafone India non-executive chairman Analjit Singh, bringing its holding to 100 percent.
Vodafone will be the first foreign carrier to take full control of an Indian operator since the government removed a 74 percent cap on outside ownership in the industry in July, Harit Shah, a Mumbai-based analyst at Nirmal Bang Equities Ltd., said by telephone. Chief Executive Officer Vittorio Colao is consolidating his power in the world’s fastest growing smartphone market as older markets in Europe decline.
“That just shows how serious Vodafone is about India,” Mumbai-based Shah said in an interview. “Now they have complete control, which has been a problem for carriers with certain local partners in the past.”
Shares of Piramal rose 2.9 percent to 553.65 rupees at the close in Mumbai trading, the highest level since Feb. 28. The benchmark BSE India Sensex index was little changed. Vodafone fell 1.6 pence to 218.4 pence as of 12:11 p.m. in London trading.
Colao is reshaping the company after selling its 45 percent stake in Verizon Wireless for $130 billion. The U.K. wireless carrier has boosted spending on airwaves and network in India to tap a surge in demand for mobile data.
“This was part of Vodafone’s strategy to increase their stake in the Indian unit and pure profit booking for Piramal,” Shah said. “The group is flush with cash from their Verizon deal and are using it to scale up in markets such as India, where data traffic is showing 70 to 100 percent growth year on year.”
Piramal said it had acquired the Vodafone India stake at an average price of 1,290 rupees in fiscal 2012. Vodafone carried out the deal through its indirect subsidiary Prime Metals Ltd., Piramal said.
Colao said in November that Vodafone would consider an initial public offering of its Indian business once tax disputes in the country are resolved. Colao said in 2011 that he envisioned an IPO similar to what the company did with South Africa’s Vodacom, where Vodafone controls 65 percent of shares.
The Newbury, England-based company is fighting a $2.2 billion tax bill related to its purchase of Hutchison Whampoa’s Indian unit 2007.
India, which accounts for the company’s biggest customer base and the most minutes of use, provides about 10 percent of Vodafone’s revenue.
In February, Vodafone agreed to spend 196 billion rupees for spectrum to carry high-speed fourth-generation wireless service in India, including coverage of Mumbai, New Delhi and Kolkata. The country will also benefit from part of Vodafone’s 7 billion-pound “Project Spring,” which will use cash from the Verizon Wireless sale to improve the company’s network globally in the next two years.
India’s cabinet cleared Vodafone to pay 101.4 billion rupees to Piramal and Singh for the about 15.5 percent stake it doesn’t yet control, India’s Information Minister Manish Tewari said in February.
The government is courting outside investors to attract capital amid a growing current-account deficit and tumbling rupee. Vodafone will own 100 percent of the Indian unit once the deal is completed, spokesman Ben Padovan said.
Voters in India’s capital headed to the polls today to elect a new government. The Bharatiya Janata Party, led by Narendra Modi, is set to win the most seats. Current Prime Minister Manmohan Singh’s Congress Party is declining in popularity as the country grapples with Asia’s second-fastest inflation rate and slowing economic growth.
Data use at Vodafone’s Indian unit more than doubled in the quarter ended Dec. 31 as more people used their phones to access the Internet.
“India data usage continues to accelerate and to stay ahead of the demand, we have rolled out our 3G sites more rapidly,” Colao said on a Feb. 6 conference call. “India is already the second biggest data market in the world.”
Smartphone shipments in China and India rose 72 percent from a year earlier to 395 million in 2013, according to researcher IDC. The surge may be a boon for mobile operators, given it will probably lead to greater use of data services, Praveen Menon and John Butler, analysts at Bloomberg Industries, wrote March 27.
Piramal’s billionaire Chairman Ajay Piramal, 58, said last year that the company intended the stake in Vodafone India to be a “short-term to medium-term investment” and expected to reap a return of between 17 percent and 20 percent.
Piramal has a net worth of more than $1.4 billion, according to data compiled by Bloomberg. His holdings include stakes in Piramal Enterprises, Piramal Glass and Piramal Phytocare. He also owns real-estate company Piramal Realty.
“We have delivered against our targeted returns,” he said in today’s statement. “We will be investing the money from this deal on expanding our businesses in financial services, life sciences and information management to create further long-term value,” Piramal said in a telephone interview.
Piramal Enterprises provides contract manufacturing for drug companies, sells consumer-health products in India and makes inhaled anesthetics used in hospitals and laboratory diagnostics. The company bought U.S. health-care research provider Decision Resources Group LLC in 2012 for $635 million to tap demand for information on the drug market.
Piramal, which sold its branded-generic drug business to Abbott Laboratories for $3.72 billion in 2010, has said it would continue to invest in the health care industry.
“We will look at future investments in only these three sectors,” Piramal said today. “Our cost of equity is about 15 percent on average. We will look at anything that gives us a rate of return over and above this,” he said.