Business Standard

Take a call: Analysts dial into Vi FPO

- TANMAY TIWARY New Delhi, 16 April

Cash-strapped Vodafone Idea’s (Vi) ~18,000 crore followon public offering (FPO) is scheduled to open for subscripti­on on April 18. Its anchor book, however, will open on April 16, 2024.

The primary objectives of Vi FPO include boosting existing 4G infrastruc­ture, establishi­ng new 4G and 5G sites, and settling certain deferred payments for spectrum to the Department of Telecommun­ications (DOT) along with associated GST obligation­s.

But, should you subscribe to Vi FPO given the growth of its counterpar­ts, Reliance Jio and Bharti Airtel, who have seen consistent rise in customer addition, and speedy rollout of 5G?

Analysts say while the fundraisin­g could strengthen Vi’s infrastruc­ture, the company faces challenges on the financial front. Unlike its competitor­s, Vodafone Idea has experience­d a consistent decline in its user base.

“A potential financial crunch looms in 2026 when significan­t spectrum and adjusted gross revenue (AGR) dues of up to $4 billion become payable for Vi. Despite the discount of 15-17 per cent, Vi’s path to a near-term revival seems uncertain,” said Shivani Nyati, head of wealth at Swastika Investmart.

For investors looking to subscribe to the Vodafone IPO, she suggests they carefully consider the above-mentioned factors before putting in their money.

Kishor Ostwal, managing director at CNI Research, too, was sceptical on the returns that the investors will be able to generate in the Vi stock going ahead. Vodafone Idea’s business model, he said, is not worth appreciati­ng considerin­g the fact the company will always be short of funds for 5G and 6G technology.

“This share is highly speculativ­e hence one can enter with high risk for 20-30 per cent kind of returns. But on fundamenta­ls, my call is to avoid. There are better options where one can get a much better return. That said, the government will never sell its stake easily. Also, the fact to be kept in mind is that once its promoters had said that they do not have money and prefer to shut the company. Such comments clearly are against the interest of the shareholde­rs and shows low integrity. My suggestion is to avoid the FPO,” Ostwal said.

On a slippery slope

On the operationa­l front, Vi has already seen a loss of 17 million wireless subscriber­s over the past one year, of which 1 million were lost in the month of January 2024 alone. In contrast, Reliance Jio added about 4.2 million wireless subscriber­s in January 2024, while Bharti Airtel added 0.75 million subscriber­s, according to the latest data released by the Telecom Regulatory Authority of India (Trai).

“Market scepticism persists regarding Vi’s ability to gain significan­t market share going ahead. In the worstcase scenario, minority investors may face limited upside potential as government ownership could surpass 80 per cent in a fully diluted scenario. Diligence is paramount for informed investment decisions,” said an analyst.

Thus far in calendar year 2024 (CY24), Vi stock has dropped 24.1 per cent as compared to over 1 per cent rise in the S&P BSE Sensex.

Bharti Airtel stock, its peer in the telecom sector, meanwhile, has gained 20.90 per cent during the same period.

Analysts at CLSA, meanwhile, suggest shares of Vi could drop as much as 61 per cent to ~5, if the beleaguere­d telecom company continues to see subscriber churn.

Those at Nomura, too, expect Vi stock price to drop to ~6.5 levels and maintain a ‘reduce’ rating on the stock. Despite the fundraise, Vi, they said, will still not be fully out of the woods. Repair, recovery and rollout of 5G for Vi will take time to fructify and will be crucial to an improvemen­t in its outlook.

“Vi also faces significan­t government dues pertaining to adjusted gross revenue and spectrum liabilitie­s, albeit some leeway from the government in the form of extended timelines for payments can be a possibilit­y, the government has repeatedly clarified its intention of maintainin­g a three-private-player market,” wrote Hemang Khanna of Nomura in a recent report.

Some analysts, however, were optimistic.

Utkarsh Sinha, managing director at Bexley Advisors, a boutique stock advisory firm, for instance, believes that Vi is here to stay and will find its niche between volume-driven Jio and Arpu-oriented Bharti Airtel.

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