Further Public Offer (FPO) Size: Rs. 18,000 cr – India’s Largest FPO

• Entirely fresh issue (i) Rs. 12,750 cr for 4G/5G network infrastructure expansion (ii) Rs. 2,175 cr for deferred spectrum payment of the current year

Price band: Rs. 10-11 per share (face value Rs.10 each)

M cap: Rs. 71,550 cr on post-FPO expanded equity, at upper price band, implying 25% dilution

Issue Dates: Thu 18^th Apr to Mon 22^nd Apr 2024, Listing: Thu 25^th Apr 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Threadbare Financials

For 9MFY24, Vodafone Idea clocked EBITDA of Rs. 12,870 cr, leading to 40% margin, lower than peers. A bigger financial drag is huge finance cost (Rs. 19,500 cr in 9MFY24) and depreciation amortization (Rs. 16,900 cr), leading to net loss of Rs. 23,560 cr. Even cash loss for 9MFY24 was as high as Rs. 6,682 cr. Company has a negative net worth of Rs. 97,932 cr. These numbers are scary to say the least!

Fund Raise Insufficient for All Woes of this Debt-Laden Telco

Current FPO is mainly for operational purposes and will not meet the deferred payment obligation, which stands at Rs. 2 lakh cr as of 31.12.23. After the end of moratorium in H1FY26, Vodafone Idea is due to pay Rs. 29,070 cr in FY26 and Rs. 43,010 cr from FY27 to FY31 per year, which is not being met by FPO proceeds. Thus, this equity fund raise is small and does not meet all future fund requirements.

Earlier Rights Issue in March 2019

In March 2019, company issued rights shares at a premium of Rs. 3 per share, in the ratio of 87:38, when share was ruling at Rs. 25 in the secondary market, to see share price thereafter falling to Rs. 4, with cost not seen even after 5 years. A fool learns through his own experience while an intelligent person through experience of others. Both cases do not warrant recommendation to go for this FPO.      

Parallel must also not be drawn to Suzlon’s rights issue of Oct 2022, which helped it become debt-free, supported by sector tailwinds.

High Competitive Intensity

FPO proceeds will, interalia, help launch of 5G in 17 circles, but company’s ARPU of Rs. 145 (lower than Airtel’s Rs. 208 and Jio’s Rs. 182) will not rise immediately as competition to acquire high-paying customers is extremely cut-throat. Deep-pocketed peers Jio and Airtel already have pan-India 5G coverage and Vodafone Idea remains a ‘price taker’ in the oligopolistic Indian telecom market. FPO will only help it match peers, and not outpace them.  

GoI: Single Largest Shareholder

Government of India, through Department of Investment and Public Asset Management (DIPAM), is the single largest shareholder of Vodafone Idea, with 32% holding as of 23.3.24, pursuant to shares allotted to government in Feb 2023, on conversion of accrued interest amount on deferred adjusted gross revenue (AGR) to equity, worth Rs.16,133 cr, and post 2.9% stake to ATC on debt-conversion in March 2024. Post FPO, government’s stake will drop to 24%. In addition to the FPO, promoter Aditya Birla Group (not Vodafone) will infuse Rs. 2,075 cr at Rs. 14.87 per share, increasing promoter holding to 50% (38% post FPO).

Tricky State of Affairs

Vodafone Idea faces a tricky situation, wherein competition won’t let it survive easy while government won’t let it die.