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Vodafone Idea FPO shares open with 9% premium at ₹12 on BSE — what should investors do?
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
While fundraising may boost Vodafone Idea’s near-term fortunes, analysts do not expect the company to gain any meaningful market share from peers and remain concerned about potential large equity dilution. However, Vi’S FPO is poised to address two critical objectives, bridging the network coverage gap, and enhancing competitiveness to some extent.
Shares of telecom giant Vodafone Idea Ltd. will continue to remain in focus after its follow-on public offer (FPO) shares started trading on Thursday, April 25. The stock opened with a premium of 7.27% at ₹11.80 on the NSE. At BSE, it jumped 9% to trade at ₹12.
“While Vodafone Idea’s FPO listing around ₹12 is a modest increase from the issue price, it reflects initial selling pressure for short-term gains. However, a drop below ₹11 seems unlikely given the company’s turnaround potential,” said Shivani Nyati, Head of Wealth at Swastika Investmart Ltd.
Nyati said that positive signs and potential post-election tariff hikes could trigger fresh buying after this initial volatility.
The analyst recommended aggressive investors with a long-term view to consider holding onto the stock, aiming for a potential rise towards ₹18.
Vodafone Idea’s board met on April 23 to approve the allotment of 16,364 million equity shares at the offer price of ₹11 per equity share, aggregating to ₹18,000 crore.
The FPO was subscribed 6.99 times on April 22, the final day of the bidding process, subscription data from exchanges showed.
Qualified institutional buyers (QIBs) took the lead, subscribing 19.3 times the portion reserved for them. Non-institutional investors purchased 4.54 times their allotted quota of shares reserved. Retail investors picked 1.01 times their allotted quota of shares.
India’s third-largest telecom operator had offered 1,260 crore shares in the ₹18,000-crore FPO, the largest such offering in the country. This move is part of a larger strategy to gather ₹45,000 crore through a combination of debt and equity.
The price band for the offer, which was open for subscription from April 18-22, was fixed at ₹10-11 apiece.
Vodafone Idea had raised ₹5,400 crore from institutional investors via the anchor book at the upper price band of ₹11.
GQG Partners, The Master Trust Bank of Japan, UBS, Norges, Citigroup Global Markets, and Morgan Stanley Investment Management were among the anchor investors.
Vodafone Idea raised funds for capex purposes of increasing its network infrastructure by expanding the capacity of the existing 4G sites and setting up new 4G and 5G infrastructure as well.
The company said it expects to roll out 5G services in select pockets within 6-9 months of the issue. The 5G rollout will cover 40% of VIL’s overall revenue base in the next 24-30 months.
Vodafone Idea hasn’t been able to roll out 5G services. Both its rivals Bharti Airtel and Reliance Jio — to whom it has ceded market share — have been active on 5G for some months now.
While this fundraising may boost Vi’s near-term fortunes, analysts do not expect the company to gain any meaningful market share from peers and remain concerned about potential large equity dilution.
However, Vodafone Idea’s FPO is poised to address two critical objectives, bridging the network coverage gap, and enhancing competitiveness to some extent.
Speaking to CNBC-TV18, Vodafone Idea’s CEO Akshaya Moondra said the amount raised would be split between the company’s 5G rollout and 4G expansion. ₹5,720 crore out of the total fundraise will be used in the 5G rollout. Moondra also said that the total money raised will be enough to fund capex plans for the next three years.
Of the 16 analysts that track Vodafone Idea, 12 have a ‘sell’ or equivalent rating. Only IIFL has an ‘add’ rating on the stock with a bull case target scenario of ₹19 per share.
At 9:35 am, the stock was trading 1.53% lower at ₹12.90 on the NSE. However, year-to-date, the stock has fallen nearly 24%. Nevertheless, it has rallied more than 100% over the last 12 months.
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