Voda Idea stock rebounds 14% from intra-day low post listing of new shares

Shares of Vodafone Idea (VIL) hit a high of Rs 13.40 bouncing back 10 per cent from its intra-day low on the National Stock Exchange (NSE) in Thursday's intra-day trade amid heavy volumes.

Vodafone Idea stock opened 10 per cent lower at Rs 11.80 after the listing of 16.36 billion new equity shares issued in the Rs 18,000-crore further public offering (FPO). VIL issued new shares at Rs 11 per share. On Wednesday, the stock of telecom services provider ended 9 per cent lower at Rs 13.10.

At 09:27 am; VIL was trading 0.76 per cent higher at Rs 13.20, as compared to 0.27 per cent decline in the Nifty 50. The counter has seen huge trading volumes with a combined 3,446 million equity shares changing hands on the NSE and BSE.

VIL’s FPO, the country’s largest-ever, saw nearly seven times more demand than shares on offer, with majority of the bids coming from foreign portfolio investors.

VIL is the third largest telecommunications service provider in India based on subscriber base. The company’s FPO has been poised to address two critical objectives, bridging the network coverage gap, and enhancing competitiveness to some extent. Furthermore, a notable reduction in VIL's bank debt is anticipated to pave the way for securing additional funding from banks.

Kumar Mangalam Birla, the chairman of Aditya Birla Group, in his address, thanked the government for supporting the share sale. Both domestic and foreign investors participated in the FPO. Birla added that Vodafone Idea was not only a company but India's asset too. The funds raised will be used for network expansion and technology.

While VIL's FPO listing around Rs 12 is a modest increase from the issue price, it reflects initial selling pressure for short-term gains. However, a drop below Rs 11 seems unlikely given the company's turnaround potential. Positive signs and potential post-election tariff hikes could trigger fresh buying after this initial volatility. Aggressive investors with a long-term view might consider holding onto the stock, aiming for a potential rise towards Rs 18 in the future, said Shivani Nyati, Head of Wealth, Swastika Investmart.

The mega fundraise by Vodafone Idea is significant as it enables the company to ready a war chest for the much-delayed 5G rollout and strengthening 4G services, according to analysts.

India’s average revenue per user or ARPU (2.1 USD per month) is the lowest amongst the major economies, an increase in the cost of data plans by the telecom industries indicates a higher scope for ARPU improvement to generate a reasonable return on investment. Improving teledensity will also help the company’s growth in the future, SBI Securities said in a note.

Nuvama Institutional Equities (NIE) said on Tuesday: “VIL’s big problem, even after its FPO and tariff hikes, is its stretched balance sheet laden with liabilities of Rs 2.5 trillion.” It said the company will need some waiver to meet its debt obligations and even if it manages that, it still has to compete with established players with sound financials.

The brokerage firm raised VIL’s target price, and upgraded it to ‘HOLD’ – as it saw the company finally becoming a ‘going concern’. “We are biding our time for more concrete steps to play out and VI becoming an investable idea,” said NIE.