Vodafone Idea: Calling Vodafone Idea's Rs 18,000 crore follow-on public offer (FPO) a step in right direction, Kotak Institutional Equities in its latest note said the move should help bridge the network coverage gap and improve Vodafone Idea's competitiveness versus peers to some extent.
With a sharp reduction in bank debt, Vodafone Idea would be able to secure further funding from banks and that
the fundraise should improve its near-term fortunes, Kotak said. The brokerage, however, does not expect Vodafone Idea to gain any meaningful market share from peers and remains concerned about potential large equity dilution due to conversion of government dues.
"Potentially, the GoI could own an 80 per cent-plus stake in Vodafone Idea on a fully diluted basis in the worst case, which would limit any meaningful upside for Vi’s minority investors," the broking firm said.
Vodafone Idea owes Rs 2.1 lakh crore debt to the government, with a large part of it under moratorium until 1HFY26. It would have repayments of Rs 29,100 crore in H2FY26 and Rs 43,000 crore annually over FY2027-31.
"The fund-raise and potential tariff hike should improve Vi’s financials. However, we don’t see a credible case where Vi’s cash Ebitda (currently Rs 8,300 crore) would increase sufficiently to meet large annual dues to the GoI. While there could be an extension of the moratorium, a partial waiver (relief on AGR dues) and further relief from the GoI, we believe writing off GoI dues in entirety for a specific company will be difficult," Kotak said.
Kotak expects Vodafone Idea to convert a large part of the GoI dues into equity over time, which could potentially lead to large equity dilutions for Vi’s non-GoI investors.
"In the worst case (100 per cent of GoI’s dues converted to equity at Rs 10/share), GoI could end up with 81 per cent stake, with existing promoters stake diluted to 9 per cent (versus 49 per cent currently and 38 per cent post fund-raise) and non-promoters’ stake diluted to 9 per cent (from 16 per cent currently and 36 per cent post fund-raise). We raise our FY2025-26E Ebitda sharply on lower subscriber declines post fund raise and higher ARPU," it said while keeping its rating on Vodafone Idea suspended, for now.