Vodafone Idea FPO: The next public offering (FPO) of Vodafone Idea, valued at ₹18,000 crore, is seen by domestic brokerage Kotak Institutional Equities as a positive move, even if it was a bit delayed. It is likely to plug the network coverage gap and boost the company’s competitiveness relative to its peers.
According to the Vodafone Idea FPO (RHP) prospectus, 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 will be able to get more bank financing after its bank debt has been significantly reduced.
Also read: Vodafone Idea to launch ₹18,000 crore FPO at ₹10-11 price group
Throwing light on the FPO plans, the brokerage firm highlighted three points: while the fundraising should improve the company’s short-term prospects, the brokerage is still worried about a possible large share dilution (on the conversion of GoI fees) and does not. believes the company will gain any appreciable market share from competitors. In the worst case scenario, minority investors would not have much chance for a sizeable upside as the GoI may own a fully diluted 80%+ stake in Vodanfone Idea.
Vodafone Idea FPO is scheduled to open on Thursday, April 18, and close on Monday, April 22, according to a BSE filing on Friday.
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Also read: IPO this week: Vodafone Idea FPO, 2 SME issues and 2 new listings planned for this week; check full list here
Let’s dig deeper into what the brokerage has to say.
Fundraising could improve Vodafone Idea’s near-term competitiveness against peers on 4G
In addition to the previous issue of preferential equity to promoters for ₹2,080 crore, Vodafone Idea has announced an FPO for ₹18,000 crore at ₹10- 11/share. In addition, the brokerage believes that Vodafone Idea could obtain additional bank financing with a significant reduction in bank debt (~ ₹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 believes that more 4G coverage will contribute to halting short-term 4G market losses.
Vodafone Idea regaining market share from larger peers would still remain a tall order
Due to its insufficient network spend, Vodafone Idea has lost around 19% of the market since the merger. While some market share is predicted, analysts predict that Vodafone Idea will close the 4G network coverage gap. The difference in 5G coverage (compared to larger counterparts) would be large, however. Kotak Institutional Equities believes that Bharti and R-Jio would not be able to gain any significant market share as the company’s competitors may gain more from any future price hike and may outspend Vodafone Idea on customer acquisition.
Also Read: Security Firm UL Solutions Jumps 23% After $946 Million IPO
Potential large dilution on share conversion of Government of India (GoIs) to limit improvement for minority
Vodafone Idea owes the Government of India around ₹2.1 trillion, most of which is placed under moratorium until 1HFY26. Refunds to the company are expected to total ₹29,100 crore in 2HFY26 and ₹43,000 crore per annum during FY2027–31. The company’s finances should improve as a result of the fundraising and possible rate increase.
However, Kotak stated in its research that “we do not see a credible case where (currently ₹8,300 crore) would increase enough to meet large annual dues to the GoI.”
The brokerage anticipates that Vodafone Idea would ultimately convert a sizeable portion of the GoI dues into shares, which may result in significant equity dilution for the company’s non-GoI investors.
GoI may end up holding around 81% of the shares in the worst case, with the current promoters’ holding diluted to around 9% (from 49% currently and ~38% after the fundraising) and the non-promoters’ investment. diluted to around 9% (from 16% currently and ~36% after the fundraising).
“We raise our FY2025-26E EBITDA sharply due to lower underlying declines after fundraising and higher ARPU. Rating remains on hold for now,” the brokerage said.
Also see: Vodafone Idea to Launch India’s Biggest Next Stock Offering Worth $2.16 Bn | Details
Disclaimer: The above views and recommendations are those of individual analysts, experts and trading companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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Published: 15 Apr 2024, 14:54 IST