Vodafone Idea’s follow-on-public offer is set to open on April 18. If successful, this will be India’s biggest FPO, surpassing YES Bank’s Rs 15,000 crore share sale in July 2020. Adani Enterprises’ Rs 20,000 crore FPO was fully subscribed but later cancelled in February 2023.
Yesterday, Vodafone Idea raised about Rs 5,400 crore from anchor investors including GQG Partners, Fidelity Investments, UBS Fund Management, Jupiter Fund Management, and Australian Super, besides Indian investors such as India Infoline, Motilal Oswal, HDFC Mutual Fund, SBI General Insurance and Quant.
The FPO will open for subscription on April 18 and close on April 22, 2024. The price band for the issue has been fixed at Rs 10-11 per share.
Vodafone Idea FPO Details
The follow-on public offer is entirely a fresh issue of shares. Half of the FPO size has been reserved for qualified institutional buyers, 15 per cent for non-institutional investors, and the remaining 35 per cent for retail investors.
Of the total FPO proceeds, the telco proposes to use Rs 12,750 crore for the purchase of equipment for the expansion of its network infrastructure by setting up new 4G sites; expanding the capacity of existing 4G sites and setting up new 5G sites. Rs 2,175.31 crore from the FPO proceeds has been set aside for deferred payments for spectrum to the Department of Telecom and the GST. The remaining funds will be used for general corporate purposes.
Investors can bid for a minimum of 1,298 equity shares and multiples of 1,298 after that. Hence, the minimum investment by retail investors would be Rs 12,980 (1,298 (Lot size) x 10 (lower price band)). At the upper end, the bidding amount will increase to Rs 14,278.
Vodafone Idea is the third-largest telecommunications service provider in India based on subscriber base and sixth largest cellular operator globally in terms of number of subscribers in a single country of operations. The company offers voice, data, enterprise and other value-added services (VAS), including short messaging services and digital services across 2G, 3G and 4G technologies.
The book-running lead managers of the FPO are Jefferies, Axis Capital and SBI Capital Market while Link Intime is the registrar.
The basis of allotment will be finalised by April 23 and shares will be credited to demat accounts by April 24, as per the RHP.
Should You Invest?
Despite the backing of big funds, analysts are quite cautious about retail investors putting their money into the FPO, the largest on D-Street so far.
Even though the offer might be a step in the right direction and alleviate some of the company’s concerns, one cannot be sure on how long it will take for the company to show some profitability and reduce debt significantly. The telco hasn’t reported an annual profit since 2016.
Analysts further said given the size of the FPO, investors are selling shares in the secondary market and planning to apply in the primary market.
“The FPO will bring big funds and it will get oversubscribed. But, investors must not expect major listing gains and avoid taking a blind call. Its a loss making company and cant see them being profitable in the next 12-18 months,” said Avinash Gorakshakar of Profitmart Securities.
The company is raising funds for capex purposes of increasing its network infrastructure by expanding the capacity of the existing 4G sites and setting up new 4G and 5G infrastructure as well.
The company said it expects to roll out 5G services in select pockets in 6-9 months of the issue. The 5G rollout will cover 40% of the company’s overall revenue base in the next 24-30 months.
VI has not been able to roll out 5G services because of lack of funds. It can be noted that both its rivals Bharti Airtel and Reliance Jio — to whom it has ceded market share — have been active on 5G for some months now.
“India’s ARPU ($2.1 per month) is the lowest amongst the major economies, an increase in the cost of data plans by the telecom industries indicates a higher scope for ARPU improvement to generate a reasonable return on investment. Improving teledensity will also help the company’s growth in the future,” said SBI Securities.
While the fund-raise should improve the company’s near-term fortunes, analysts don’t expect the company to gain any meaningful market share from peers and remain concerned about potential large equity dilution.
“Potentially, the government could own an 80%+ stake in Vi on a fully diluted basis in the worst case, which would limit any meaningful upside for Vi’s minority investors,” said Kotak Institutional Equities.
However, the issue should help bridge the network coverage gap and improve competitiveness versus peers.
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