FPO Note: Vodafone Idea Ltd.

Highlights

Vodafone Idea Limited (VIL) backed by Vodafone Group and Adity Birla Group, is the 3rd largest telecommunications service provider in India based on subscriber base and 6th largest cellular operator globally in terms of number of subscribers in a single country of operations.

Through its pan India network, we offer voice, data, enterprise and other value-added services (VAS), including short messaging services and digital services across 2G, 3G and 4G technologies. They also offer connectivity services to enterprise customers.

The company hold active licenses for national long distance (NLD), international long distance (ILD) and internet service provider (ISP), and registration for infrastructure provider (IP-1) services. They carry inter-service area voice traffic and incoming and outgoing international voice traffic on its network, which is facilitated through interconnections with their active licenses.

As of 9MFY24, they have an n aggregate of 8,005.2 MHz of spectrum holdings across different frequency bands, approximately 183,400 unique tower locations and over 438,900 broadband (3G and 4G) sites. VIL population coverage exceeded 1.2 bn individuals and their OFC spanned over 298,000 kilometres.

Out of the total FPO proceeds of Rs. 180,000 mn, Rs. 127,920 mn would go towards Purchase of equipment for the expansion of their network infrastructure by (a) setting up new 4G sites; (b) expanding the capacity of existing 4G Sites and new 4G sites; and (c) setting up new 5G sites, Rs. 21,753 mn would utilize towards payment of certain deferred payments for spectrum to the DoT and the GST. The rest of the amount would utilise for general corporate purposes.

Key Highlights

• In 2017, there were more than 10 telecommunication operators. Between CY2017 and CY2023, many of the operators exited the market or significantly scaled down their operations, or merged in another operator’s company. Presently, the Indian telecom market has three private and one public sector operators, which offers the optimum structure for growth and healthy competition.
• Both Vodafone and Aditya Birla Group have invested significant capital in the business. VIL raised Rs. 250 bn in May 2019 through a rights issue, including Rs. 179.2 bn contributed by the promoter group. Also, Promoter group invested a further ~Rs. 49.4 bn in 2022.
• Currently, the government holds ~32 pct of the stake in VIL. Post-FPO, the government will cut down to 24 pct from the current 32 pct stake.
• The company is looking to improve its competitiveness in 17 important service areas. Additionally, they will be investing in the remaining 5 areas and are taking a focused approach to capital spending to boost growth. Moreover, the company aims to install small cells in busy areas of major cities within these service areas to further enhance the user experience.
• VIL aims to expand their 4G network footprint in rural and semi-urban growth markets and enhance their average revenue per user (ARPU) by providing an improved network experience in the existing markets. Currently, ~42 pct of the VI’s subscribers are 2G users.
• They are a well-established provider of enterprise solutions across diverse industry verticals through their Vi Business service. They are in the process of transitioning from a telco to a techco, offering a holistic range of technology services to its customers.
• The company seeks to monetize digital opportunities by entering into strategic collaborations aimed at maximizing value for VIL’s customers. Their broad strategy aims at leveraging their platform capabilities to deepen integration with partners, enabling differentiated experiences and creating monetization opportunities.
• Sales of the company have grown by ~0.27 pct CAGR during the period FY21–23. During FY23, the company reported sales of Rs. 421,772 mn which increased by ~9.50 pct YoY, while EBITDA increased by 4.86 pct YoY to Rs. 168,170 mn as the EBITDA margin declined from 41.64 pct in FY22 to 39.87 pct in FY23. As of FY23, the company reported a loss of Rs. 213,011 mn.

Key Risk

• The audit and review reports of the statutory auditors of the company contain a paragraph on material uncertainty relating to going concern.
• VIL has incurred significant indebtedness and has not complied with certain covenants under its financing agreements. VIL’s inability to meet their obligations could adversely affect business.
• They have incurred losses during recent periods and may not achieve or sustain profitability in the future.

Financial Performance and KPI’s

Valuation

As the company is making losses, the P/E ratio cannot be calculated. There are strong hopes that the telecom tariffs will be hiked after Lok Sabha elections as such the company might return to profitability in the future. At the higher price band of Rs 11, the offer is made at around 19.15 times post-IPO EV/TTM EBITDA.

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