Vodafone Idea FPO opens today: Is investing in this Rs 18,000 crore offering worth it? Here's what analysts suggest

Vodafone Idea FPO : Vodafone Idea has opened its Follow-on Public Offering (FPO) today with an opportunity for investors to subscribe to a Rs 18,000-crore offer. Analysts suggest that despite the company's debt burden, the fresh infusion of capital could enhance its prospects. Here's what you need to consider before deciding whether to apply for this offer.

Vodafone Idea FPO: What's on offer?

According to ET, the FPO, opening on April 18 and closing on April 22, is priced between Rs 10-11 per share, presenting a discount of 17-29% from the Tuesday closing price of Rs 12.9. Note that financial markets were closed on Wednesday for Ram Navami.

Analysts view this pricing favorably, considering the potential for the stock 's upward movement.

Vodafone Idea FPO: Analysts' insights

Hemang Jani, Director, Finazenn, an investment advisory, was quoted as saying, “The FPO is a good opportunity to get attractive pricing for the brand name and customer base that Vodafone has. So, it's not a bad proposition.”

Jani suggested that retail investors have two options: they can either sell on the listing day or hold onto the stock for 6 to 12 months, potentially benefiting from a rise in the stock price to Rs 16.

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Market performance and risk-reward ratio

In 2024, Vodafone Idea's shares fell by 24.12%, whereas the BSE 200 index has gained almost 5%. However, analysts believe that robust participation from anchor investors is a positive sign for the FPO.

Abhilash Pagaria, head of alternative & quantitative research at Nuvama, adds that the risk-to-reward ratio appears favorable for the FPO, and the anchor list includes reputable institutional names such as GQG and domestic funds.

Vodafone Idea's anchor book, valued at Rs 5,400 crore, ranked as the third-largest in India and was fully subscribed on Tuesday. Notable foreign institutions like GQG Partners, UBS, Norges, and Morgan Stanley Investment Management, as well as domestic mutual fund investors such as HDFC, Quant, and Motilal Oswal, participated in the company's anchor book.

Manish Chowdhury, Head of research at StoxBox, explains that investors with a moderate to high-risk appetite could consider subscribing to the FPO, viewing it as a turnaround opportunity. However, it may take a few quarters for the proceeds of the FPO to manifest in the company's performance.

Vodafone Idea FPO: Use of funds

Analysts mentioned that approximately 70% of the Rs 18,000 crore likely to be raised through the FPO will be allocated for capacity expansion. However, investors are still awaiting clarification regarding the Rs 2 lakh crore owed to the government as dues.

The injection of Rs 18,000 crore signals the company's intent to secure market share. The proceeds from the FPO are expected to bolster the company's Average Revenue Per User (ARPU) and narrow the gap between itself and its competitors, said Chowdhury.

Vodafone Idea is jointly owned by the Aditya Birla Group and Vodafone, with the Indian government holding a 32% stake, making it the largest shareholder.

Analysts believe that the fundraising from the FPO has set the stage for a short-term rally in the stock. “From a conservative perspective, an up move of 30% to 35% at these prices is likely in the next 3 months. This can be a short, 3-4 months kind of trade opportunity and it can be evaluated later whether long term prospects make sense,” stated Pagaria.

Potential upside and concerns

Pagaria suggests that if the stock price increases as expected, there's a possibility of its inclusion in the MSCI index during the August-November review, potentially attracting passive flows of around $150 million.

Jani cautioned that debt concerns could limit the stock's upside potential. “While the upside may not be significant, due to the huge debt and network quality issues, 15-16 is the best target for the stock in the near term,” Jani added.