Vodafone Idea FPO: Kotak Institutional Equities hailed Vodafone Idea’s Rs 18,000 crore follow-on public offer (FPO) as a positive step forward. In their latest note, they emphasized that this move is poised to address the network coverage gap and enhance Vodafone Idea’s competitiveness against its peers to some extent.
With a significant decrease in bank debt, Vodafone Idea would be well-positioned to obtain additional funding from banks.
Kotak stated that the fundraising is likely to bolster Vodafone Idea’s short-term prospects. However, the brokerage does not anticipate significant market share gains for Vodafone Idea compared to its peers. They also express concerns about the possibility of substantial equity dilution stemming from the conversion of government dues.
“The Government of India could potentially hold an 80 percent-plus stake in Vodafone Idea on a fully diluted basis in the worst-case scenario,” the broking firm noted. “This situation would constrain any significant upside potential for minority investors of Vi.”
Vodafone Idea’s debt to the government stands at Rs 2.1 lakh crore, with a substantial portion of it currently under moratorium until the first half of fiscal year 2026. The company faces repayments of Rs 29,100 crore in the second half of fiscal year 2026 and an annual repayment obligation of Rs 43,000 crore for the period spanning fiscal years 2027 to 2031.
The fundraising and potential tariff hike are expected to enhance Vi’s financial position, Kotak stated. However, we do not foresee a scenario where Vi’s cash EBITDA, currently at Rs 8,300 crore, would increase significantly to cover the substantial annual dues owed to the Government of India. While there may be possibilities such as an extension of the moratorium, partial waivers on AGR dues, and additional relief from the Government of India, we believe that completely writing off the government dues for a specific company would be challenging.”
Kotak anticipates that Vodafone Idea will gradually convert a significant portion of the Government of India (GoI) dues into equity, potentially resulting in substantial equity dilution for Vi’s non-GoI investors.
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“In the worst-case scenario, where 100 percent of the Government of India’s dues are converted to equity at Rs 10 per share, the GoI could potentially hold an 81 percent stake. This would result in the existing promoters’ stake being diluted to 9 percent (compared to the current 49 percent, and 38 percent post fundraise), and non-promoters’ stake diluted to 9 percent (down from the current 16 percent, and 36 percent post fundraise). We have significantly increased our EBITDA estimates for FY2025-26 due to lower subscriber attrition post fundraising and higher ARPU,” stated Kotak, while temporarily suspending its rating on Vodafone Idea.
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