Vodafone Values India Arm At Rs 93,400 Crore Ahead Of Initial Public Offer
Vodafone Plc’s attempts to strengthen balance sheet of Indian arm ahead of proposed IPO.
Vodafone India Ltd.’s balance sheet is now as big as that of Reliance Jio Infocomm Ltd.’s after the recent Rs 47,700 crore equity infusion by its parent, Vodafone Plc, ahead of its initial public offer. The parent has valued its Indian arm at Rs 93,400 crore in the latest round of equity infusion, according to Vodafone India’s filings with the Ministry of Corporate Affairs, which BloombergQuint accessed.
Capital Changes
Vodafone Plc is beginning to focus on its India plans in 2016 with renewed vigour after a period of relative inaction in last two years. The company has invested over Rs 47,700 crore since the beginning of the year.
In May this year, Vodafone India raised nearly Rs 10,000 crore via a rights issue to existing shareholders namely Vodafone Plc and its investment companies. Vodafone India issued shares in the ratio of 23 shares for every 100 shares held by the existing shareholders. The company issued 10.58 crore shares at a price of Rs 935 per share.
In its July 2016 Extraordinary General Meeting, the company issued bonus shares in the ratio of 2:1 i.e. two bonus shares for every one share held by the shareholder, according to Vodafone India’s filings. This bonus share issue raised its paid up capital to Rs 1,677.75 crore. The company used its share premium account to issue bonus shares, a move that ensures cheaper share price for retail investors, during its forthcoming IPO.
With a view that the price per share of the IPO appears optically attractive for investors especially retail investors, the Board of Directors of the Company at their meeting held on July 15, 2016, approved issue of bonus shares in the ratio of 2:1 (two shares for every one share held) to shareholders, subject to approval of the shareholders and such other authorities as may be necessary.Vodafone’s Explanatory Statement. (Source: July 15 EGM Notice)
August Rights Issue
Vodafone Plc participated in the second rights issue within four months of the last one. This time, it set out a rights ratio of 68 shares for every 100 shares held by existing shareholders. It issued 113.55 crore shares at Rs 332 per share to its shareholders. Vodafone India raised Rs 37,700 crore via this second round of rights issue, thereby raising Rs 47,700 crore in equity from the parent in the current calendar year.
Vodafone India IPO
Vodafone India disclosed in its filings that the company is contemplating a potential initial public offer (IPO) and listing of its equity shares on Indian stock exchanges depending on various factors including market conditions.
Vodafone Plc’s participation in the rights issue de-leveraged India arm’s balance sheet and helped shore up its valuation.
Valuations
Vodafone India has a paid-up equity capital of Rs 2,813.3 crore. According to data compiled by BloombergQuint, the last round of equity infusion into Vodafone India at Rs 332 per share, pegged its equity value at Rs 93,401.42 crore, a bit higher than what listed telecom companies are valued at this point in time.
Bharti Airtel trades at an enterprise value (EV) to EBITDA ratio of seven times for the financial year 2016-17, compared to Vodafone India which currently has an EV/EBITDA ratio of 6.5 times, said a source working on the Vodafone India IPO. Bharti has more than double the revenue and more than three times the EBITDA of Vodafone India, according to Axis Capital.
Vodafone India arrived upon this pricing for the shares based on a valuation report, the company said in its filings. This rights issue price will now form the basis for pricing the company when it files for an IPO in early 2017.
It is yet to firm up its plan on the size of the IPO, as it would depend on how aggressive the company would be in the forthcoming auctions, said one person cited above.
The company is also yet to decide on whether the IPO would be an offer for sale by Vodafone Plc or fresh issue of shares by the Indian arm.
Vodafone India Financials
The company earned revenue of Rs 44,532 crore for the year ended March 31, 2016, and had an earnings’ before interest, tax, depreciation and amortisation of Rs 13,125 crore and an adjusted operating profit of Rs 4,624.8 crore during the same period.
At the end of March 2015, the total liability of the companies stood at Rs 67,412 crore, including long-term borrowings which stood Rs 41,941.5 crore. This debt rose to close to Rs 80,000 crore ahead of the rights issue. Vodafone India has reduced its debt by nearly Rs 50,000 crore post the equity infusion. The company currently has a debt of close to Rs 30,000 crore, that is nearly 2.2 times its financial year 2015-16 EBITDA, said the source cited above.
The company has been paying over Rs 5,500 crore in interest burden every year as part of the debt servicing. The reduction in debt will improve its profitability as it would reduce a large part of interest burden it had on its balance sheet.