Did Voda play it fair with Essar?

[caption id=“attachment_2367” align=“alignleft” width=“380” caption=“Vodafone bought out Essar’s stake for $5 billion. Reuters”]  [/caption]

Don’t you get that crazy aha feeling when it all checks out? I just had such a feeling today. Last evening Vodafone said that Essar had exited the company and Vodafone paid $5 billion for that privilege. That set me thinking- Did Vodafone pay too much or too little? When in doubt do the math I told myself.

I went through Vodafone’s latest results, took their first half FY2011 numbers, annualized them and converted them into dollars. That told me that Vodafone India had a revenue of $6.016 billion and a profit of $1.561 billion. Now you can use many valuation techniques but I thought let me use a simple and elegant method (even though I say it myself!) : Price-to-Sales. Specifically, Price-to-Sales of Bharti Airtel for the last year. Thomson Reuters says it is 2.53. Using that number gives Vodafone India’s value as $15.22 billion and to buy 33% of that Vodafone would need to pay $5 billion.

This is exactly the sum they paid to Essar. Neat, huh! Anybody got alternative answers?