Vodafone Idea’s Rs 18,000 crore follow-on public offer (FPO), the biggest ever to hit the Indian stock market, is expected to keep the stock price muted in the near term due to the large number of new shares flooding the market, said market experts.
The FPO is part of the cash-strapped company’s plan to raise Rs 45,000 crore through debt and equity as it struggles to repay debt and invest in improving its services to arrest subscriber churn. The FPO will open for subscription on April 18 and close on April 22, while anchor investors bids are expected to come in on April 16.
The merchant bankers for the issue are SBI Capital Markets, Jefferies and Axis Capital.
Reacting to the FPO announcement, shares of Vodafone Idea fell around 5% intraday on Friday to hit a nearly two-month low of 12.25 rupees. However, the stock recovered after reports said GQG Partners and SBI Mutual Fund may put in as much as $800 million (around Rs 6,500) crore. As a result, the stock ended around 2% higher at 13.2 rupees per share.
Big FPOs have been quite rare in the past decade. For example, there were only two FPOs in the past decade, one by YES Bank of Rs 15,000 crore in FY 21 and another by Ruchi Soya in FY22.
While this will be the biggest ever FPO in India, market participants believe that the constant need for funding may also keep the stock under pressure. The company has given a price band of 10-11 rupees for the FPO. At the upper end of the price band, the issue was at a discount of around 15% to the stock’s closing price on Wednesday.
An analyst from a top brokerage firm said the company will likely have commitments from institutional investors for the FPO as the issue might not get strong response from retail investors given Vi India is a loss-making company and the discount for FPO price is not very big.
The stock has slumped 85% since 2016 from around 85 rupees amid significant competition in the telecom industry post Reliance Jio Infocomm’s entry. Vodafone Idea has been losing subscribers every month, and its ARPU is also substantially lower compared to its bigger rivals Bharti Airtel and Reliance Jio.
Sunny Agrawal, head of equity research at SBICAPS Securities, said his view on the stock remains neutral despite the FPO. Market participants expect the stock to remain in the range of 10-14 rupees in the near-to-medium term.
In a recent report, CLSA set its target price for the stock at 5 rupees with a ‘sell’ rating. “Beyond capex and 5G rollout, Vodafone Idea faces a financial crunch in FY26CL when annual spectrum and AGR payments of $4 billion per annum will fall due, unless the government converts debt principal to equity at the end of the moratorium,” CLSA said.
Analysts believe the turnaround for Vodafone Idea’s stock price is only possible with tariff hikes and stable subscriber numbers. Agrawal said expectations of tariff increases post election will give investors an assurance that things won’t be going downhill for the industry or the company.
