Vodafone Idea zooms 12% after FPO sees 6x subscription; focus shifts to allotment, listing

Shares of Vodafone Idea jumped 12 percent on April 23, a day after the company's follow-on public offer (FPO) concluded with 6.36 times subscription with investors bidding for 8,011.8 crore equity shares.

The country's third-largest telecom operator had offered 1,260 crore shares in the Rs 18,000-crore FPO, the largest such offering in the country as part of a larger strategy to gather Rs 45,000 crore.

Vodafone raised Rs 5,400 crore from institutional investors such as Citigroup, Goldman Sachs, Morgan Stanley, GQG Partners and more via the anchor book in the FPO upper price band of Rs 11.

The telco will spend Rs 12,750 crore of the net issue proceeds to expand the network infrastructure by setting up new 4G and 5G sites and expanding the capacity of existing 4G sites.

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The sharp rally in the stocks also comes as Ambit Capital said that with the completion of the first part of the fundraise, the company may well be able to raise Rs 45,000 crore through government backing, anchor investors, and a gamut of qualified institutional buyers (QIBs). Notably, the government holds a little over 32 percent stake in the company.

In addition to the strong institutional support for Vodafone Idea, industrialist Kumar Mangalam Birla’s return to the company’s board and the equity fundraise will prompt banks to lend money to the telecom company, Ambit Capital noted.

This will help Vodafone Idea expand its 4G network and roll out 5G services, and give it another chance to improve its market competitiveness, it said.

Broking firm IIFL Securities recently upgraded its price target for Vodafone Idea stock to Rs 14 which the scrip surpassed in intraday trade on April 23. The brokerage expects tariffs to go up over the next three years which would benefit all players in the sector.

The Rs 45,000-crore funding would not only arrest subscriber losses but also enable faster upgrade of 2G users to 4G, according to IIFL.

According to Kotak analysts, despite the fundraising, a potential hike in tariffs, there is no credible case where Vodafone’s cash EBITDA which stands at Rs 8,300 crore could increase substantially to meet the large annual due to the government.

The conversion of government dues into equity will ease the financial burden but may not work well for investors anyway. This will lead to a huge equity dilution that will be negative for existing investors, according to Kotak and other fund managers Moneycontrol spoke to.