Vodafone Idea has announced that it will launch a follow on public offer (FPO) of equity shares up to Rs 18,000 crore on April 18, 2024. The FPO will close on 22nd April. 

Firstly, let us note the important details.

• Face value: Rs 10
• Price Band: Rs 10-11
• Bid lot: 1298 shares and in multiple thereof
• Minimum bid lot amount for retail investors: Rs 14,278 (At cap price)
• Retail share of the offer: 35%
• Earlier in Feb 2024, the company had announced its intention to raise funds – which finally received a big push on 12th April.

The news of Vodafone-Idea FPO resulted in a 5% Vi share crash on April 12. The Vodafone Idea FPO is the biggest one so far and thus obviously created some ruckus in the markets. The last one of this kind came from Yes bank in 2020, for Rs 15,000 crore.

The anchor investor bidding date is 16th April and RHP will be released soon.

Vodafone Idea is the third largest player in the Indian market. It is, however, ridden with losses and is presenting a poor performance while it prepares to go for the FPO. Vi lost 1.7 million subscribers between Dec 22-Nov 23 to rivals Jio and Bharti Airtel. Since then, it has somewhat arrested such losses. 

Still, the record from the subscribers POV is dismal. Vodafone lagged in rolling out 5G which is the major reason for such a bad performance.

Vi has around 2.2 lakh crore of debt to add to its worries. Additionally in AGR obligations alone, Vi owes the government Rs 50,400 crore.

Also, its ARPU [Average revenue per user] is still way too low compared to Bharti Airtel and Jio. It has shown some increase in the last year (7.41%), but it still has a long way to go. Just for comparison, Bharti Airtel’s ARPU is Rs 208.

Vi plans to increase the company’s authorised share capital to Rs 1 lakh crore from the current 75,000 crore. Together with debt, the company also plans to raise funds to the tune of Rs 45,000 crores in total.

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Using the FPO funds, Vodafone Idea most probably wants to focus on network investments in 17 out of the 22 circles of the country. This will ensure a strong foothold in 4G and 5G domain. It tops two circles already – Kerala and Mumbai [Revenue market share wise #1 operator]

For 5G, the target is to cover 40% of existing revenues in the next 24-30 months. Since ARPU is such an important matrix, the company also wants to focus on ARPU improvements in the near future.

One strong point to note is that: 4G subscriber base has been rising consistently for 10 consecutive quarters at Vi now. 

The company has a total subscriber base of 215+ mn today, and its largest shareholder is the government of India, post the bailout. Other two prominent promoters are Vodafone PLC and Aditya Birla group. 

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In spite of the bail-out, the company has however, not been able to break into the duopoly of Bharti Airtel and Jio as of today. 

Probably the starkest comment came from the auditors in the last annual report – 

“The Company’s ability to continue as a going concern is dependent on its ability to raise additional funds as required and successful negotiations with lenders and vendors for continued support and generation of cash flow from its operations that it needs to settle its liabilities as they fall due.”

Clearly, Vi desperately needs cash. One person even jokingly said on X that Vi should go to the shark tank show to raise money! 

Now, the question is: Will retail investors oblige? A lot of them are worried already about their share dilution and whether the company can successfully weed out the debt and performance related issues. That is not surprising because Vi is a loss making enterprise as of now and faces a tough challenge of snatching its share back from telecom biggies like Bharti Airtel and Jio. 

Perhaps, many investors will wait to see what anchor investors do. As per the latest report from ET, GQG partners and State bank of India mutual fund are considering investment in Vi.

Whether FPO gets fully subscribed depends on the collective sentiment of the investors. Only time will tell whether Vi can woo the investors successfully. Until then, let us watch, observe and study the FPO unfold!  

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Disclaimer: This post is for informational purposes only. Not advice. Please consult a SEBI registered investment advisor before making any decision.