The Foreign Investment Promotion Board (FIPB) on Monday cleared Vodafone Plc’s proposal to hike stake in its Indian subsidiary and approved Tesco’s proposal to pick up stake in Trent ’s hypermarket subsidiary.
In a deal valued at Rs 10,141 crore, Vodafone Plc was looking to buy out the remaining stake in Vodafone India it does not already own. The London-listed company owns 64.38 percent in Vodafone India directly, and another 20.12 percent indirectly via stakes in other companies.
While UK-based retailer Tesco Plc had proposed to enter the Indian multi-brand retail segment in joint venture with a Tata Group company with an initial investment of USD 110 million (about Rs 682 crore). After the approval, Tesco will pick up a 50 percent stake in Trent Hypermarket Ltd, a wholly-owned subsidiary of Trent Ltd , a Tata group company.
Vodafone first deal since 100 percent FDI allowed
Vodafone’s proposal to own its entire local subsidiary would become the first since the government this year allowed 100 percent FDI in the telecom sector.
The deal assumes even more significance in the backdrop of a USD 2 billion, or over Rs 12,000-crore, tax case the telecom company has fought with the country’s tax department.
“It will give a fillip to investments that India is looking for,” Anuradha Dutt, counsel for Vodafone India in the tax case, said. “Vodafone has always maintained that it has a lot of confidence in the Indian economy.”
“This is a positive signal because Vodafone has probably been the one that has been most directly hit by the changes in government policy. Despite all the problems it has been going through with the government, it is still willing to up its holding in Vodafone India,” telecom analyst Kunal Bajaj said.
Vodafone buying 100 percent in its subsidiary would give it greater flexibility to take important business decisions, Mohammad Chowdhury, Executive Director and Leader, Telecom Sector, PriceWaterhouseCoopers, said. “It gives the company more options with respect to how to chart out its strategy for the next few years in India which is very important, because with spectrum auctions, elections and M&A guidelines finalization coming up, there are several moves that the big players such as Vodafone may want to take.”
Tesco first foreign multi-brand retail chain
Tesco is the first global retailer to apply for multi-brand retailing after the government allowed 51 percent FDI in the segment in September last year.
The jinx has been broken,” said Amnish Aggarwal of Prabhudas Lilladher, referring to the lack of interest from global retailers after the government’s announcement. “Practically, every hypermarket player in India is in need of capital. This deal opens up the entire space for M&A.”
Trent Hypermarket runs 16 outlets, under the Star Bazaar chain, in the southern and western regions with support from Tesco.
The FIPB, headed by Economic Affairs Secretary Arvind Mayaram, considered 12 items including Tesco’s FDI proposal.
Trent stock price
On December 31, 2013, at 11:54 hrs Trent was quoting at Rs 1287.20, up Rs 29.45, or 2.34 percent. The 52-week high of the share was Rs 1345.00 and the 52-week low was Rs 902.00.
The company’s trailing 12-month (TTM) EPS was at Rs 22.10 per share as per the quarter ended September 2013. The stock’s price-to-earnings (P/E) ratio was 58.24. The latest book value of the company is Rs 461.02 per share. At current value, the price-to-book value of the company is 2.79.