Vodafone Idea FPO: Is it worth it to sign up for the biggest follow-on offer in India? Experts suggest exercising cautious

Vodafone Idea FPO: Is it worth it to sign up for the biggest follow-on offer in India? Experts suggest exercising cautious

Over the nine months that concluded in December, Vodafone Idea suffered a hefty loss of Rs 23,564 crore, a significant increase from Rs 22,822 crore the previous year.

The heavily indebted telecom giant Vodafone Idea plans to make the biggest follow-on-public offer (FPO) in India this week in an effort to reduce losses and pay off outstanding debt and other postponed obligations. The cash-strapped corporation plans to finance Rs 45,000 crore in debt and equity, which includes the FPO.

If the Rs 18,000-crore FPO is effective, it could help Vodafone Idea a little, but experts warn investors not to invest in it at all due to the company's ongoing losses, cash burn, and fierce rivalry from Reliance Jio and Bharti Airtel.

Vodafone Idea lost a staggering Rs 23,564 crore in the nine months that concluded on December 31, 2023. This was in addition to the Rs 22,822 crore loss company declared during the same time last year.

The entire debt of the corporation as of December 2023 was Rs 2.15 lakh crore. According to reports, Vodafone Idea also owes the government Rs 58,254 crore for postponed spectrum.

The FPO is a completely new share offering. Qualified institutional purchasers will get half of the FPO size, non-institutional investors would receive 15%, and regular investors will receive the remaining 35%.

The proposed price per share is Rs 10-11. This is less than the most recent fundraising, in which the promoter Aditya Birla Group contributed Rs 2,075 crore at Rs 14.87 a share through a preferential issue.

Mehta Equities' Prashanth Tapse states that it is not advisable to participate in the offer given the short-term bleak outlook of consistently losing money and subscribers due to a variety of reasons, including its inability to roll out extensive 4G and 4G services, unlike its peers Jio and Airtel.

However, he stated: "If the FPO goes fully subscribed, it would provide huge sums of money to the company and enable it to make investments and broaden faster in its 4G infrastructure and to set up 5G infra as well, which is the need of the minute when compared to peers."

Investors should not apply for this FPO, according to Amit Goel, co-founder and chief global strategist at Pace360, since markets are overpriced and overstretched and valuations are "very rich."

In 2023, the value of Vodafone Idea's shares increased by 123%. But the telecom stock has dropped 24 percent since January.

With the money injection, Vodafone Idea will be able to invest more in network capital investment, which will lower the gap in 4G coverage and make it easier to build out 5G infrastructure, putting it more in line with rivals. The usage and licensing fees that telecom operators are required to pay to the Department of Telecommunications (DoT) could significantly improve the company's cash flow situation when combined with the possibility of tariff adjustments following the elections and the hope of relief in AGR (adjusted gross revenue), Goel continued.

Shivani Nyati, head of wealth at Swastika Investmart, notes that there is uncertainty over Vodafone Idea's prospects for a short-term comeback. She advises investors to carefully weigh these considerations before taking part in the FPO.

The corporation is facing financial issues, even though the funding might improve its infrastructure. In contrast to its rivals, Vodafone Idea has consistently seen a decrease in its subscriber base. "Moreover, there could be a financial crunch in 2026 when significant AGR and spectrum dues of up to $4 billion become payable," Nyati said.

The telecom carrier intends to spend Rs 12,750 crore of the total FPO funding on equipment purchases to upgrade its network infrastructure. This entails creating new 5G sites as well as expanding the capacity of already-existing 4G sites. Also set aside from the revenues is Rs 2,175.31 crore for goods and services tax and outstanding spectrum payments to the Department of Telecommunications.