Vodafone Idea Shares Drop 14% Even As Analysts Call Fundraise A Good Start

Shares of Vodafone Idea Ltd. fell over 14% on Wednesday, even as the cash-strapped telecom company's board approved raising up to Rs 45,000 crore.

This is a significant fund raise. If secured by Vodafone Idea, it will be a material positive and will enable the company cover upcoming dues and commence 5G rollout, according to Nomura.

"Upon completion of the fund raise, the company will have the capability to invest in the expansion of its 4G network and deployment of 5G technology," Motilal Oswal Financial Services Ltd. said in a note.

According to Citi, the latest development could be a near-term positive for both Vodafone Idea and creditor Indus Towers, which engages in the installation telecommunications towers for the Vodafone Group unit.

The board met on Tuesday to consider the fundraise via a combination of equity and/or equity-linked instruments. The promoters will also participate in the proposed equity raise, according to an exchange filing.

This Rs 20,000 crore fundraising is part of the telecom major's plans to raise Rs 45,000 through equity and debt to expand 4G coverage, 5G network rollout and capacity expansion.

The company will seek the shareholders' approval on April 2 and expects to complete the capital raise in the coming quarter.

It's very positive that finally they've had a definitive board meeting where they are talking about these specific numbers, Kunal Bajaj, chief executive officer and co-founder of CloudExtel, told NDTV Profit. "Also, we've been hearing a lot of good messaging from the promoter that they're not walking away from this... So it looks like the might finally be there at the end of the tunnel."

The current promoter participation is not enough for what is going to be required from a debt repayment perspective as well as from a capex commitment perspective over the next three to five years, Bajaj said.

"So this is not a one-time thing and we need to look at what is going to be the commitment to fund and strengthen and reinvest in the company over the next three to five years."

Shares of the company fell as much as 14.20% during the day, the most since Aug. 5, 2021, to Rs 13.60 apiece on the NSE. It was trading 11.04% lower at Rs 14.10 apiece, compared to a 0.01% decline in the benchmark Nifty 50 as of 10.47 a.m.

The stock has risen 133% in the last 12 months. The total traded volume so far in the day stood at 3,901 times its 30-day average. The relative strength index was at 50.9.

Two out of the 17 analysts tracking Vodafone have a 'hold' rating on the stock, and 15 suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 56.3%.

• Citi has maintained 'neutral' rating on the stock.

• The announcement suggests a concrete fund raise plan may be in place with specific timelines, it said.

• The research firm has a target price of Rs 320 on Indus Tower, implying an upside of 29%.

• Nomura has a 'reduce' rating on the stock with a target price of Rs 6.50. This indicates a downside of 56.95%.

• With a more secured financial position, VIL will be able to compete more effectively in the industry and further moderate the pace of subscriber loss, and then revert to growth in the coming years, it said.

• Vodafone Idea had announced that it plans to launch 5G within 6-7 months of securing funding. The company is in discussions with technology partners for finalising its 5G rollout strategy and has partnered with leading handset manufacturers to test their 5G smartphone portfolio on its 5G network.

• Increasing 5G availability in key metro markets will enable VIL to limit subscriber declines in key markets.

• The significant equity component in comparison to the promoter’s commitment of up to Rs 20,000 crore can potentially mean it may be able to bring on some external investors, which has been in the works for a long time now. "If VIL is able to bring in external investors, it would be a significant positive for the company."

• Has a 'neutral' rating with a target price of Rs 14, implying a downside of 12%.

• The capex directed toward the rollout of 4G and 5G holds significant importance. Hence, the much-awaited capital raise is crucial, as it is essential to ensure immediate liquidity and facilitate the expansion of the network. 

• The significant amount of cash required to service debt leaves limited upside opportunities for equity holders, even with the potential operating leverage benefits from Ebitda, servicing the debt without external funding will be challenging.

Shares of Indus Tower rose after announcement of the Vodafone Idea fundraise plan. The stock jumped as much as 4.22% before paring gains to trade 2.96% higher at 10:23 a.m., compared to a 0.02% advance in the benchmark Nifty 50.

It has risen 44.73% in the last 12 months. The total traded volume so far in the day stood at 1.3 times its 30-day average. The relative strength index was at 66.41

Of the 23 analysts tracking the company, 10 maintain a 'buy', six recommend a 'hold,' and seven suggest a 'sell', according to Bloomberg data. The average 12-month analysts' price target implies a downside of 8%.