The public offering, which closes on April 22, has been priced in the band of ₹10-11 apiece, which is 17-29% below the stock’s Tuesday closing price of ₹12.9. Financial markets were shut on Wednesday for Ram Navami.
Analysts said the risk-reward for investing in the debt-laden Vodafone Idea at the FPO price is favourable.
“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,” said Hemang Jani, director, Finazenn, an investment advisory.
Jani said that retail investors can either choose to sell on listing day or hold the stock for 6 to 12 months and benefit from a possible upmove in the stock to ₹16.
So far in 2024, the company’s shares have plunged 24.12% while the BSE 200 index gained almost 5%.
Analysts said a strong anchor investor participation bodes well for the FPO.”The risk-to-reward ratio looks good for the FPO and the anchor list has some strong institutional names like GQG and domestic funds,” said Abhilash Pagaria, head of alternative & quantitative research, Nuvama.
Vodafone Idea’s anchor book of ₹5,400 crore was the third-largest anchor book in India and was fully subscribed on Tuesday. Foreign institutions such as GQG Partners, UBS, Norges, and Morgan Stanley Investment Management along with domestic mutual fund investors including HDFC, Quant and Motilal Oswal subscribed to the company’s anchor book.
“Investors with a moderate to high-risk appetite could subscribe to the FPO and play it from a turnaround story perspective,” said Manish Chowdhury, head of research at StoxBox. “Once the proceeds of the FPO are realised, it will take a few quarters to reflect in the company’s performance.”
Analysts said almost 70% of the ₹18,000 crore the company will likely raise through the FPO will be used to invest in capacity expansion. Investors still await clarity on the ₹2 lakh crore it owes the government as dues.
“The infusion of ₹18,000 crore indicates that the company aims to claim market share,” said Chowdhury.
“The proceeds of the FPO are likely to enhance the company’s Average Revenue Per User (ARPU) and reduce the differential between the company and its peers.”
Vodafone Idea is jointly owned by the Aditya Birla Group and Vodafone. The government of India also holds a 32% stake in the company, making it the largest shareholder.
Analysts said the fundraising through the FPO has paved the way for a rally in the stock, at least in the near term.
“From a conservative perspective, an up move of 30% to 35% at these prices is likely in the next 3 months,” said Pagaria. “This can be a short, 3-4 months kind of trade opportunity and it can be evaluated later whether long term prospects make sense.”
If the stock price moves up as anticipated, it could be included in the MSCI index in the August-November review, leading to passive flows of about $ 150 million, said Pagaria.
Jani said debt concerns may cap upside for the stock.
“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,” said Jani.