Evaluating Vodafone Idea Ltd FPO opportunity; Should you invest?

Here's a closer look at the exclusive details of Vodafone Idea Ltd FPO

About the Issue  

Vodafone Idea Ltd is launching its follow-on public offering (FPO) for equity shares valued at Rs 10 each. The FPO price range is set between Rs 10 and Rs 11 per equity share, resulting in a total issue size of Rs 18,000 crore at the upper price band.  

The FPO is scheduled to commence on April 18, 2024, and will conclude on April 22, 2024. The market lot size for the FPO is 1,298 shares, with the option to apply for multiples of this lot. Individual retail investors have the opportunity to apply for a maximum of 14 lots, equivalent to 18,172 shares or a total investment of Rs 1,99,892 assuming the upper price band.   

Objects of the Issue  

Considering that the offer is exclusively a fresh issue, it is crucial to note that the company will directly profit from the offer proceeds. The company plans to allocate the net proceeds raised from the fresh issue for the following purposes:

1. Purchase of equipment for the expansion of the network infrastructure by (a) setting up new 4G sites; (b) expanding the capacity of existing 4G Sites and new 4G sites; and (c) setting up new 5G sites

2. Payment of certain deferred payments for spectrum to the DoT and the GST thereon

3. General corporate purposes.

Promoter holding  

Kumar Mangalam Birla, Hindalco Industries Limited, Grasim Industries Limited, Birla TMT Holdings Private Limited, Vodafone International Holdings B.V., Al-Amin Investments Limited, Asian Telecommunication Investments (Mauritius) Limited, CCII (Mauritius), Inc., Euro Pacific Securities Ltd, Vodafone Telecommunications (India) Limited, Mobilvest, Prime Metals Ltd, Trans Crystal Ltd, Omega Telecom Holdings Private Limited and Usha Martin Telematics Limited are the promoters of the company. The promoters currently hold a pre-issue shareholding stake of 40.06 per cent in the company.  

Company profile  

The company ranks third among telecommunications service providers in India in terms of subscriber base and holds the sixth position globally among cellular operators, measured by the number of subscribers within a single country of operation. Leveraging its nationwide network, it provides voice, data, enterprise, and various value-added services, such as short messaging and digital services, across 2G, 3G, and 4G technologies. As of December 31, 2023, it serves more than 300 million customers across 17 countries with both mobile and fixed services. Additionally, it maintains collaborations with mobile networks in 45 other countries. As of December 31, 2023, the company had over 223 million subscribers and a subscriber market share of 19.3 per cent.

Financials  

The company has experienced lacklustre revenue performance in recent years. Based on the revenue trends observed in the first nine months of FY24, projections suggest marginal growth for the full fiscal year if the current pace continues. The company's subscriber base witnessed a continuous decline amid strong competition from other players. Additionally, the company has been incurring losses for several years and is burdened with substantial borrowing.

Valuation and outlook  

While Bharti Airtel Ltd and Bharti Hexacom Ltd, Vodafone Idea Ltd's listed peers, have demonstrated notable returns and consequently trade at significant valuations, Vodafone Idea fails to measure up to them due to its inability to generate profits. Predictions of potential tariff hikes in the near term are expected to enhance cash flows for the company. However, the question of long-term growth persists.

Given the investments made by competitors in 5G technology and their stronger positioning in the 5G market, Vodafone Idea must accelerate its efforts. Despite the company's intention to utilize the net proceeds from the FPO for expanding network infrastructure and repaying loans, the funds raised will fall considerably short of the amount required to effectively enhance business performance.

Hence, considering the dismal performance of the company and the associated risks, we advise investors to refrain from engaging with the issue at this time.