Vodafone Idea FPO: IIFL Securities Upgrades Stock On 'Significant' Fundraising

Domestic brokerage IIFL Securities has upgraded Vodafone Idea Ltd shares' rating to 'Add' while also recommending to subscribe to the ailing telecom operator's Rs 18,000 crore follow-on public offer which opens on April 18. The price band has been fixed at Rs 10-11 per share for its upcoming offer which will end on April 22. IIFL Securities believes that the telecom player's FPO price reasonable upside.

A combination of significant fund raising, ARPU increase and a potential favourable outcome in the AGR verdict in the Supreme Court should provide a new lease of life to the Aditya Birla Group firm, the brokerage said in a note.

"Equity infusion in Vodafone Idea (to be likely followed by debt raising) is likely to result in Rs 450 billion funding and should enable Vodafone Idea to narrow the 4G coverage/capacity gap with peers. Direct tariff hikes, coupled with this upgrade, should drive Vodafone Idea's ARPU from Rs 145 in the third quarter of previous financial year to Rs 241 in FY27," said Balaji Subramanian, vice president at IIFL Securities.

This significant fund raising would enable the cash-strapped telecom operator to step up capital expenditure and narrow the gap on coverage and capacity as compared to peers. The brokerage estimates Rs 550 billion capex over FY25-27 which should help stem subscriber churn.

Vodafone Idea plans to use the proceeds of the FPO towards launch of 5G services and further capex, its debt payments will be at least Rs 30,000 crore (this excludes the new debt it plans to take) from the next financial year, after the moratorium on AGR dues is lifted.

"If we assume Rs 350 billion government dues getting converted into equity, June-25 target price comes to Rs14 per share. We also conduct a sensitivity analysis to multiple variables, which suggests limited downside risk from the FPO price," the brokerage added.

Shares of Vodafone Idea closed nearly 2% lower at Rs 12.9 per share on the BSE on Tuesday as compared to 0.6% fall in benchmark Sensex. The telecom stock is down about 24% in 2024 so far.