MUMBAI, 15 APRIL, 2024 (GPN): Telecom service provider Vodafone Idea Limited (Vi) announced today that it’s FPO is scheduled to open on Thursday, April 18, and close on Monday, April 22, as per the BSE filing on Friday.

Vodafone Idea’s FPO, with a floor price of a Rs 10 per share. Vodafone Idea, ranked third in terms of subscribers among telecom carriers in India, stated that investors can bid for a minimum lot of 1,298 equity shares.

The minimum application amount, based on the upper end of the price band, amounts to Rs 14,278 for one lot of shares in the FPO. Investors have the flexibility to bid in multiples of 1,298 equity shares thereafter.

The minimum application amount, based on the upper end of the price band, amounts to Rs 14,278 for one lot of shares in the FPO. Investors have the flexibility to bid in multiples of 1,298 equity shares thereafter.

Vodafone Idea’s Capital Raising Committee will meet again tomorrow (April 16) to determine the purpose of the allocation of equity shares to successful anchor investors.

The telco’s board had approved raising up to Rs 20,000 crore via equity on February 27. A day later, GPN first reported that the company may consider an FPO as part of the fundraising activity.

The shares issued under the FPO will not be registered under the US Securities Act of 1933 and may not be offered or sold within the US unless there is an exemption from registration requirements of the said act and other state securities laws. “No public offering of securities in the United States is contemplated,” as per Vodafone Idea’s exchange filing.

Apart from the fundraise, Vodafone Idea is also said to be in talks with banks to tie up debt funding, taking the total fundraise to Rs 45,000 crore as a combination of equity and debt.

A follow-on public offering is a mechanism through which a listed company issues new shares to investors or existing shareholders, usually the promoters, to raise additional funds.

Vi will roll out 5G services after its FPO (follow-on public offering) funding, Vodafone Idea Limited, Chief Executive Officer (CEO) Akshaya Moondra said to GPN on Monday, April 15. Moondra emphasised that the company has a competitive spectrum portfolio and possesses 5G spectrum in 17 priority circles. The telco is also equipped with a 5G-ready radio architecture.

“After launching the largest Rights Issue five years back, we are now launching the largest FPO. We have 298 kms of fibre,” the Vodafone Idea CEO said.

Moondra also said that a decision of pricing the FPO is with the company, and that the government is a shareholder and have no say in the pricing. The government holds a 32% stake in the loss-making company.

Addressing growth strategies, Moondra highlighted the significance of Average Revenue Per User (ARPU) enhancement during the FPO press conference. Vodafone Idea’s China ARPU is at $ 6.64 as against India’s $2.08.

The Vodafone Idea CEO noted that capital investment has been very little over the last 10 quarters. The telco’s focus is on managing cash flows and making investments , and not on (negative) net worth, he said.

The company intends to cover 40% of its revenue base with 5G in the next 2-2.5 years. It will take 6-9 months for the 5G rollout to start, Moondra said.

Expert analysts, Stalwarts and broking companies Indications: 

The largest FPO before this was a Rs 15,000 crore sale by Yes Bank in 2020.

Larger Peers Bharti Airtel and Reliance Jio have already launched their 5G services in most parts of the country.

The follow-on public offering (FPO) by Vodafone Idea, valued at Rs 18,000 crore, is seen by domestic brokerage Kotak Institutional Equities as a positive move,

The FPO will likely plug the network coverage gap and boost the company’s competitiveness relative to its peers.

As per Vodafone Idea FPO’s red herring prospectus (RHP), the company’s peers are Bharti Airtel Ltd (with a P/E of 84.37), Bharti Hexacom Ltd (with a P/E of 51.91), and Reliance Jio Infocomm Ltd.

The brokerage also expressed confidence that Vodafone Idea would be able to obtain more bank funding after its bank debt has been significantly reduced.

Throwing light on the FPO plans, the brokerage firm has highlighted three points: while the fund-raise should improve the company’s short-term prospects, the brokerage is still worried about potential large stock dilution (on the conversion of GoI dues) and does not believe the company will gain any appreciable market share from competitors. In the worst-case scenario, minority investors would not have much opportunity for considerable upside as the GoI may own an entirely diluted 80%+ stake in Vodanfone Idea.

In addition to the previous issue of preferential equity to promoters for Rs 2,080 crore, Vodafone Idea has announced an FPO for Rs 18,000 crore at ₹10- 11/share. In addition, the brokerage believes Vodafone Idea would be able to obtain further bank funding with a significant decrease in bank debt (~ Rs 4,500 crore by the end of February 2024). About 70% of the FPO proceeds will be used by Vodafone Idea to expand 4G capacity (40.8k sites), expand 4G coverage (26k sites), and roll out 5G (22k sites). The brokerage thinks that more 4G coverage will contribute to halting short-term 4G market share losses.

Due to its insufficient network spending, Vodafone Idea has lost around 19% of the market since the merger. While some market share losses are anticipated, analysts anticipate Vodafone Idea to close the 4G network coverage gap. The difference in 5G coverage (in comparison to larger counterparts) would still be substantial, though. Kotak Institutional Equities believes that Bharti and R-Jio would not be able to acquire any significant market share since the company’s competitors stand to gain more from any future pricing rise and are able to outspend Vodafone Idea on customer acquisition.

Vodafone Idea owes the Government of India around Rs 2.1 trillion, most of which is placed under moratorium until 1HFY26. Repayments to the firm are expected to total Rs 29,100 crore in 2HFY26 and Rs 43,000 crore a year during FY2027–31. The company’s finances ought to improve as a result of the fundraising and possible tariff increase.

Nevertheless, Kotak stated in its research that “we do not see a credible case where (currently Rs 8,300 crore) would increase sufficiently to meet large annual dues to the GoI.”

The brokerage anticipates that Vodafone Idea would eventually convert a sizable portion of the GoI dues into stock, which may result in significant equity dilution for the company’s non-GoI investors.

GoI may ultimately hold around 81% of the shares in the worst-case scenario, with the present promoters’ holding diluted to about 9% (from 49% currently and ~38% after the fund-raise) and the non-promoters’ stake diluted to about 9% (from 16% currently and ~36% after the fund-raise).

“We raise our FY2025-26E EBITDA sharply on lower subs declines post fund raise and higher ARPU. Rating remains suspended for now,” the brokerage said.Shares of Vodafone Idea were trading 1.16% higher at Rs 13.10 apiece on the NSE during Monday’s afternoon trade. The stock has given multibagger returns of over 110% over the last 12 months, although the stock has corrected nearly 30% from its recent peak.ENDS/ GPN

Vodafone Idea Limited RHP Link: https://www.myvi.in/content/dam/microsite/pdfs/fpo/VIL-Red-Herring-Prospectus.pdf