Vi FPO rings in vigour for telecom sector, may reduce subscriber loss

Vodafone Idea's (Vi) recently concluded ~18,000 crore follow-on public offer (FPO) has reinvigorated the telecom sector, as it may reduce subscriber erosion of the beleaguered telco, analysts said.

“While this FPO provides VIL with a way out and shift from its current ‘full of concerns’ status — to finally — a ‘going concern’ — it also reinvigorates the sector,” Nuvama institutional equities said in an analyst report.

It stressed that the telco would need to raise tariffs soon.

“Given the multiple rounds of unilateral indirect tariff hikes that Bharti has taken over the last two years – it is highly likely that it will follow suit if VIL decides to take any substantial across-the-board tariff hike. Jio, with its eyes on a potential IPO in the coming years, would not want to let go of this opportunity, to increase its profitability and return on capital employed – given it already has a 45 per cent subscriber share in the industry,” it said. The largest ever FPO in India saw 1,636 crore shares issued at ~11 per piece. Since their listing on Thursday, the share price was affected by ATC Telecom Infrastructure selling its entire 2.8 per cent stake in Vi and closed at ~13.45 on Friday. Analysts believe the latest fund-raise by Vi may stop the massive customer attrition being faced by the telco for two years now. With Vi’s fund-raise, subscriber market share gains for its competitors Reliance Jio and Bharti Airtel could moderate to some extent, Kotak Institutional Equities said in a report. Stopping the massive churn of users is of utmost importance to Vi, which has lost 16.25 million subscribers in the first 11 months of FY24, according to data from the Telecom Regulatory Authority of India (Trai).

Since November 2023, the telco has lost more than a million subscribers every month. Its wireless market share fell to 18.93 per cent at the end of February, down from 20.7 per cent in February 2023. Global investment banking and financial services major UBS gave a neutral rating to Vi.

“While Vodafone Idea has recently increased capex, its overall spending remains materially below that of Airtel and Jio, continuing to put the company at a disadvantage. Upside risk includes a material fund-raise by the company leading to investments in the network and regaining of market share,” it said in an analyst report. Others said the telecom sector may be affected little by a weakening Vi.

“The long-term sector outlook remains buoyant as market consolidation has left just two strong players underscoring the opportunity for the monetisation of 5G and tariff hikes, and once VIL’S debt moratorium (AGR + spectrum liability) expires in November 25E, its ~40,000 crore revenue size may offer a strong market share growth opportunity in two years,” financial services firm Motilal Oswal said.

The telco has to pay ~12,000 crore to the government between Oct 2025 and Mar 2026, taking into account both principal and interest. Subsequently, it needs to pay ~43,000 crore annually for five years, or from FY27 till FY31.