Vodafone Idea’s successful INR18,000 crore follow-on public offer (FPO) is likely to hasten the follow-up INR25,000 crore debt issue and make its targeted INR45,000 crore a quick reality.
Such a scenario could provide the cash-strapped telco the much-needed financial ammo to ramp up 4G operations, roll out 5G in priority markets and improve overall market competitiveness vs its bigger and more profitable rivals, Bharti Airtel and Reliance Jio, say analysts and industry executives.
More importantly, a stronger and revitalised Vi would diminish the possibility of India becoming a duopolistic telecoms market and help retain its 3-private-players structure.
“The successful FPO by Vi is set to change the telecom sector dynamics for good. With the FPO and proposed debt-raise thereafter, Vi is looking to improve its network quality, which should, in turn, enable it to take tariff hikes, (post-elections). Bharti and Jio are expected to happily corroborate the same, thereby leading to a jump in average revenue per user (ARPU), profitability, cash flows and returns profiles of these operators,” says Nuvama Institutional Equities in a research note.
Analysts, in fact, believe that if Vi can move fast and deploy funds in its network, especially where it lags on 4G population coverage, its revenue streams could look up, setting the stage for a genuine financial turnaround.
Analysts also caution that the current fundraise may not be sufficient as Vi’s big problem - even after its FPO and likely tariff hikes - is a stretched balance sheet, laden with massive liabilities of INR2.5 lakh-crore (of which, INR2.1 lakh-crore are spectrum and AGR liabilities). Matters could easily come to a head after the second half of FY26, when the moratorium ends on spectrum and AGR payments.
“Vi’s cash flows, even on higher tariffs, will be inadequate to meet these obligations, once the payment moratorium ends in September 2025, which is why, it needs some sort of waiver on these liabilities,” says Nuvama.
Since the merger of Vodafone and Idea in 2018, the company has lost 19% of its market share due to its inadequate network spending. Analysts also reckon that Vi’s fortunes hinge on the government's decision to convert more dues into equity going forward.
Ambit Capital, though, is a tad more optimistic. “If Vi uses the funds and improves its competitiveness, and its share price and cash flow generation increase, it can then decide on whether to pay spectrum/AGR dues or give the government an option to convert unpaid dues into equity at the then prevalent share prices,” says the brokerage in a note.
The government currently holds around 32% stake in Vi, which will drop to under 24%, post the FPO.
At present, Vi has earmarked over 70% of targeted INR45,000 crore fundraise proceeds for capex. Of the INR18,000 crore raised via FPO, over INR12,000 crore has been set aside for 4G expansion and 5G rollouts. Of this, INR5,720 crore will go towards 5G rollouts with 4G expansion being a priority for the telco.
The State Bank of India (SBI), Vi’s biggest lender, though, seems gung-ho on the telco’s survival prospects and second coming. On Thursday, SBI chairman Dinesh Kumar Khara said the success of Vi’s FPO puts the telco in “a different trajectory” as it underlines a leap of trust of the larger investor community stemming from Aditya Birla Group (ABG) chairman Kumar Mangalam Birla assuming chairmanship of the telco.
To instill investor confidence, an ABG entity recently infused INR2,075 crore via a preferential share issue as part of the just-concluded equity fundraise.
For a company that is clawing its way back, every bit helps
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