Vodafone Idea FPO : Should you subscribe to India’s largest follow-on offer? Analysts advise caution

Vodafone Idea FPO

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Vodafone Idea FPO : Vodafone Idea incurred a massive loss of Rs 23,564 crore for the nine months ended December, widening from Rs 22,822 crore a year earlier

Vodafone Idea FPO : Debt-ridden telecom major Vodafone Idea is set to launch India’s largest follow-on-public offer (FPO) this week to repay dues and other deferred payments, and to cut losses. The FPO is part of the cash-strapped company’s plan to raise Rs 45,000 crore through debt and equity.

The Rs 18,000-crore FPO, if successful, could bring some relief to Vodafone Idea, but analysts advise investors to be cautious or even avoid the issue, citing continued losses, cash burn and hyper-competition from Reliance Jio and Bharti Airtel. Vodafone Idea FPO

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Vodafone Idea incurred a loss of a massive Rs 23,564 crore for the nine months ended December 31, 2023. This was on top of the Rs 22,822 crore loss it reported in the corresponding period of the previous year.

The company’s total debt stood at Rs 2.15 lakh crore at the end of December 2023. Vodafone Idea also reportedly owes Rs 58,254 crore to the government in deferred spectrum dues. Vodafone Idea FPO

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The FPO is entirely a fresh issue of shares. Half of the FPO size has been reserved for qualified institutional buyers, 15 percent for non-institutional investors and the remaining 35 percent for retail investors.

The shares will be offered at Rs 10-11 apiece. This is at a discount to the recent fundraise, where promoter entity Aditya Birla Group infused Rs 2,075 crore via a preferential issue at Rs 14.87 per share. Vodafone Idea FPO

Prashanth Tapse of Mehta Equities says that considering the near-term gloomy outlook of continuously losing money as well as subscribers due to a variety of reasons including including its inability to roll out extensive 4G and 4G services, unlike its peers Jio and Airtel, it is not advisable to take part in the offer. Vodafone Idea FPO

However, he added: “If the FPO goes fully subscribed, it would provide huge financial relief to the company and enable it to invest and expand faster in its 4G infrastructure and set up 5G infra as well, which is the need of the hour when compared to peers.” Vodafone Idea FPO

Amit Goel, co-founder and chief global strategist at Pace360, advises investors to not apply for this FPO as markets are overvalued and overstretched, and valuations are “very rich.”

The Vodafone Idea stock rose  123 percent in 2023. However, since this January, the telecom stock has slipped 24 percent.

The infusion of funds will empower Vodafone Idea to enhance its network capital expenditure, reducing the disparity in 4G coverage and facilitating the rollout of 5G infrastructure, aligning it more closely with competitors. Paired with potential tariff adjustments post-elections and the prospect of relief in AGR (adjusted gross revenue, the usage and licensing fee that telecom operators are charged by the Department of T elecommunications (DoT) dues could substantially bolster the company’s cash flow situation, Goel added.Vodafone Idea FPO

Swastika Investmart’s head of wealth Shivani Nyati flags that Vodafone Idea’s path to a near-term revival seems uncertain. Therefore, investors should carefully consider these factors before participating in the FPO, she suggests.

While the fundraising could strengthen its infrastructure, the company faces challenges on the financial front. Unlike its competitors, Vodafone Idea has experienced a consistent userbase decline. “Further, a potential financial crunch looms in 2026 when significant spectrum and AGR dues of up to $4 billion become payable,” Nyati said.

Out of the entire FPO funds, the telecom company plans to allocate Rs 12,750 crore towards acquiring equipment to expand its network infrastructure. This includes setting up new 4G sites, boosting the capacity of existing 4G sites, and establishing new 5G sites. Additionally, Rs 2,175.31 crore from the proceeds has been earmarked for deferred payments related to spectrum to the Department of Telecommunications and towards goods and services tax.Vodafone Idea FPO

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