Vodafone Idea FPO review (May apply)

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Review By Dilip Davda on April 17, 2024

•    VIL is the third largest telecommunication service provider in India.
•    It has been struggling to regain its lost glory.
•    After a Right Issue worth Rs. 25000 cr. in April 2019, it is now coming with FPO worth Rs. 18000 cr.
•    On the financial front, it has been posting losses at the net levels.
•    This FPO is a pure long term reward bet for cash surplus and will informed patient investors.

PREFACE:
The company has been in news for past few months about its financial closures for proposed investments/restructuring plans and we noticed interests from fund houses, PSU banks, global investors etc. which were indicating about its future prospects. VIL is the third largest telecommunication service provider in India and is sixth largest player in a single country on the basis of its subscribers. The Anchor subscription list indicates the interest of big investors in this company that has seen many ups and downs and is trying hard to be on track. However, its post FPO equity base raise concern and it's a pure long term play for well-informed/cash surplus investors. The company came with its Rights Issue worth Rs. 25000 cr. at a price of Rs. 12.50 per share in April 2019 and now a FPO worth Rs. 18000 cr. with a price band of Rs. 10 - Rs. 11 per share. The price movement of this counter on the bourses has moved between Rs. 18.30 to Rs. 2.61 between these five years. 

ABOUT COMPANY:
Vodafone Idea Ltd. (VIL) is the third largest telecommunications service provider in India based on subscriber base (Source: TRAI Subscription Report). According to the GSMA Intelligence Database, it is the sixth largest cellular operator globally in terms of number of subscribers in a single country of operations. Through its pan India network, VIL offers voice, data, enterprise and other value-added services ("VAS"), including short messaging services and digital services across 2G, 3G and 4G technologies. It also offers connectivity services to enterprise customers. The company holds active licenses for national long distance ("NLD"), international long distance ("ILD") and internet service provider ("ISP"), and registration for infrastructure provider ("IP-1") services. It carries inter-service area voice traffic and incoming and outgoing international voice traffic on network, which is facilitated through interconnections with its active licenses.

For the quarter ended December 31, 2023, its applicable gross revenue ("ApGR") market share was 17.79% of the Indian mobile telecommunications services industry (as derived from TRAI Financial Data for the quarter ended December 31, 2023). As of December 31, 2023, it had over 223.0 million subscribers and a subscriber market share of 19.3% (Source: TRAI Subscription Report dated December 31, 2023). Furthermore, for the quarter ended December 31, 2023, it carried approximately 401 billion voice minutes and approximately 6,004 billion MB of data on network.

Its promoters are part of the Aditya Birla group and the Vodafone group. The Aditya Birla group is one of the largest business groups in India and a leading global conglomerate. As of March 31, 2023, the Aditya Birla group had a presence in 40 countries across diverse sectors such as cement, metals and mining, mobile telecommunications, fashion retail, financial services, textiles, carbon black, trading, chemicals, renewables, paints, real estate and jewellery retail. During Financial Year 2023, Aditya Birla group's overseas revenues were also derived from operations in North and South America, Europe and Asia (excluding India). The Vodafone group is the largest Pan-European and African telecommunications company. As of December 31, 2023, the Vodafone group provides mobile and fixed services to over 300 million customers in 17 countries and has collaborations with mobile networks in 45 other countries. The Vodafone group also has one of the world's largest Internet of Things ("IoT") platforms.

As of December 31, 2023, it had an aggregate of 8,005.2 MHz of spectrum holdings across different frequency bands, of which 7,975.2 MHz spectrum is liberalized and can be used towards deployment of any technology (2G, 3G, 4G or 5G). This includes the mid-band 5G spectrum (3300 MHz band) in 17 priority service areas and mmWave 5G spectrum (26 GHz band) in 16 service areas. As of December 31, 2023, the company had approximately 183,400 unique tower locations and over 438,900 broadband (3G and 4G) sites, with all its 4G sites enabled for the provision of voice over LTE ("VoLTE") services. As of December 31, 2023, its population coverage exceeded 1.2 billion individuals, and OFC spanned over 298,000 kilometres, combining both its own infrastructure and indefeasible rights of use ("IRU") taken (excluding overlaps). VIL's mobile network also reaches a vast number of communities across more than 487,000 towns and villages in India, with broadband services in more than 342,200 towns and villages, each as of December 31, 2023. Through its robust infrastructure, it carries most of its domestic and international outbound traffic on its own network for optimal efficiency. Additionally, it generates revenue by partnering with other telecommunication companies to carry incoming international traffic to India. As of December 31, 2023, lit had 12598 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a book building process Follow-on Public Offer (FPO) worth Rs. 18000 cr. of fresh equity shares having a face value of Rs. 10 each. The offer opens on April 18, 2024, and will close on April 22, 2024. It has announced a price band of Rs. 10 - Rs. 11 per share. The minimum application to be made is for 1298 shares and in multiples thereon, thereafter. The issue size at the upper price band is for approx. 16363636363 equity shares. Post allotment, shares will be listed on BSE and NSE. The FPO constitutes 24.61% of the post-FPO paid-up equity capital of the company. From the net proceeds, it will utilize Rs. 12750.00 cr. for purchase of equipments for expansion of network infra for 4G and 5G, Rs. 2175.32 cr. for payment of certain deferred payments to DoT, and rest for general corporate purposes. 

The company garnered Rs. 5400 cr. from 60 odd Anchor Investors on 16th April 2024, and the list expresses the type of investors that have opted for investment in this third mega player in telecommunications in India, the biggest subscriber based densely populated market in the world. 

The Book Running Lead Managers (BRLMs) to this offer are Axis Capital Ltd., Jefferies India Pvt. Ltd., and SBI Capital Markets Ltd., while Link Intime India Pvt. Ltd. is the registrar to the offer. 

Having issued initial equity capital at par, it issued further equity shares in the price range of Rs. 12.50 - Rs. 99.50 per share between December 2006 and May 2019. The average cost of acquisition of shares by the promoters is Rs. NA, Rs. 11.74, Rs. 16.32, Rs. 18.13, Rs. 22.07, Rs. 24.36, Rs. 24.59, Rs. 27.86, and Rs. 51.50 per share. 

Post-FPO, company's current paid-up equity capital of Rs. 50119.82 cr. will stand enhanced to Rs. 66483.46 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 73131.80 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/- (loss) of Rs. 42126.40 cr. / Rs. - (44233.10) cr. (FY21), Rs. 38644.90 cr. / Rs. - (28245.40) cr. (FY22), and Rs. 42488.50 cr. / Rs. - (29301.10) cr. (FY23). 

For 9M of FY24 ended on December 31, 2023, it posted a net loss of Rs. - (23563.80) cr. on a total income of Rs. 32125.60 cr., against a net loss of Rs. - (23187.00) cr. on a total income of Rs. 31862.80 cr. Thus it has been incurring losses at the net levels for the reported periods with increasing negative reserves. 

For the last three fiscals, it has reported an average negative EPS of Rs. - (10.06), and an average negative RoNW of NA. The issue is priced negatively based on its NAV of Rs. - (20.12) as of December 31, 2023.

While it has posted negative margins for PAT and RoCE, it marked positive margins for EBITDA as 40.39% (FY21), 41.64% (FY22), 39.87% (FY23), and 39.91 (9M-FY24). 

The issue is priced around par value to attract investment. Based on its negative book value as well as the earnings, it's a pure long term play and its growth hinges with its proposed plans for increasing subscriber base and the positive net earnings. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, the company has shown Bharti Airtel, Bharti Hexa and Reliance Jio as their listed peers. They are trading at a P/E of 63.3, 85.6, and NA, (as of April 16, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 40 public issues in the past three fiscals and out of which 15 issues closed below the offer price on the listing date. 

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