Is It Time for You to Invest in Vodafone Idea’s Rs 18,000 Crore First Public Offering?

The follow-on public offer from Vodafone Idea is scheduled to begin on April 18. Should it be successful, this would be the largest FPO in India, topping the Rs 15,000 crore share sale by YES Bank in July 2020. The Rs 20,000 crore FPO offered by Adani Enterprises was completely subscribed until it was canceled in February 2023.

Vodafone Idea raised approximately Rs 5,400 crore yesterday from Indian investors like India Infoline, Motilal Oswal, HDFC Mutual Fund, SBI General Insurance, and Quant, as well as from anchor investors like GQG Partners, Fidelity Investments, UBS Fund Management, Jupiter Fund Management, and Australian Super.

April 18 is when the FPO will open for subscriptions, and it will end on April 22, 2024. The issue’s price range is set at Rs 10–11 per share.

Details of Vodafone Idea FPO

The subsequent public offering consists only of a new share issuance. Qualified institutional purchasers will get half of the FPO size, non-institutional investors would receive 15%, and regular investors will receive the remaining 35%.

The telecom plans to utilize the whole revenues from the FPO to buy equipment for the construction of new 4G sites, the augmentation of capacity at current 4G sites, and the establishment of new 5G sites. This would account for Rs 12,750 crore of the total proceeds. From the profits of the FPO, Rs 2,175.31 crore has been put aside for postponed payments of spectrum to the GST and the Department of Telecom. The money that is left over will be used for basic business needs.

A minimum of 1,298 equity shares are available for bidding, with further multiples of 1,298 permitted. Retail investors would thus need to spend a minimum of Rs 12,980 (1,298 (lot size) x 10 (lowest price band)). The top bidder would get an additional Rs 14,278.

When it comes to the number of customers in a single nation of operation, Vodafone Idea is the sixth-largest cellular operator worldwide and the third-largest telecom service provider in India. The business provides phone, data, enterprise, and other value-added services (VAS), such as digital services using 2G, 3G, and 4G technologies and short messaging services.

Axis Capital, SBI Capital Market, and Jefferies are the book-running lead managers of the FPO, while Link Intime is the registrar.

As per the RHP, shares will be credited to demat accounts by April 24 and the basis of allocation will be finalized by April 23.

Is It Time to Invest?

Analysts are wary about individual investors contributing to the FPO, which is the biggest on D-Street to yet, even with the support of huge funds.

It’s unclear how long it will take the firm to demonstrate any profitability and drastically decrease debt, even though the offer may be a positive move and allay some of its worries. Since 2016, the telecom has not disclosed a yearly profit.

Analysts said that investors are going to apply in the main market and selling shares in the secondary market due to the magnitude of the FPO.

“There will be a huge influx of funds and an oversubscription to the FPO.” However, investors shouldn’t anticipate significant listing returns and shouldn’t make a snap decision. It’s a losing business, and I don’t see them turning a profit in the next 12 to 18 months,” Profitmart Securities’ Avinash Gorakshakar said.

By building new 4G and 5G infrastructure in addition to boosting the capacity of the current 4G sites, the firm is generating capital for the aim of extending its network infrastructure.

The business said that within six to nine months of the problem, it plans to bring out 5G services in some areas. In the next 24 to 30 months, 40% of the company’s total revenue base will be impacted by the 5G deployment.

VI’s inability to provide 5G services as a result of financial constraints. It should be mentioned that for a few months already, its competitors Bharti Airtel and Reliance Jio, to which it has lost market share, have both been using 5G.

India has the lowest monthly average revenue per user (ARPU) of all the major nations ($2.1). The telecom companies’ recent hike in data plan prices suggests that there is more room for ARPU growth in order to provide a sustainable return on investment. Future corporate growth will benefit from increased teledensity as well, according to SBI Securities.

Although the fund-raise could help the business’s short-term results, analysts are still worried about possibly significant shareholder dilution and don’t think the company will significantly outperform its competitors in terms of market share.

According to Kotak Institutional Equities, “in the worst case, the government could own an 80%+ stake in Vi on a fully diluted basis, which would limit any meaningful upside for Vi’s minority investors.”

But the problem ought to aid in closing the coverage gap in the network and boost competitiveness in comparison to peers.