Vi targets 40% 5G coverage of revenue base in next 2-2.5 years

Vodafone Idea on Monday said the company plans to cover 40% of its existing revenue base with 5G within the next 2-2.5 years. Following an Rs 18,000 crore capital raise through a follow-on public offering (FPO), the company aims to roll out the service within six-nine months.

From the FPO proceeds, Vodafone Idea will allocate Rs 5,720 crore for the 5G launch, establishing 22,000 5G sites across 17 priority circles – 10,000 in the current fiscal year and 12,000 in FY26.

“We have been engaged with our vendors for 5G for quite sometime now…Once the funding is in place, we will expedite the ordering (for equipments) as quickly as possible,” Vodafone Idea chief executive officer Akshaya Moondra said.

The subscription for the share sale will open on April 18 and close on April 22, with anchor investors bidding on April 16. SBI Capital Markets, Jefferies, and Axis Capital are serving as the merchant bankers for the issue.

The Book Running Lead Managers were optimistic about investor interest in the FPO. “Despite the current market volatility, we have seen strong interest from anchors,” said Suraj Krishnaswamy, executive director of investment banking at Axis Capital.

The company also expects good subscription from retail and high-networth individuals, as it indicated that the interest from these investors is usually higher when there are good anchor investments.

Post the FPO, Aditya Birla Group and Vodafone Group’s shareholding is expected to decrease to 40% from 49%, while the government’s shareholding is anticipated to drop to 24% from 32%.

In regards to the arrangement with the government post the moratorium in FY26, Moondra said, “We plan to pay the installments to the government out of our cash generation. However, there is a government support available in the form of reform package which says that some installments can be converted at the government’s option”.

Even if the government further decides to convert the regulatory dues into equity, the shareholding will unlikely to increase over 32%, Moondra added.

Vodafone Idea emphasised the necessity for tariff hikes in the industry. Although Moondra did not specify a timeline for the tariff increase, he suggested that the hikes would be in a similar range as in the past.

Analysts expect tariff hikes to be in the range of 15-17% post the general elections.

In comparison to Airtel and Jio, whose average revenue per user (ARPU) stood at Rs 208 and Rs 182 respectively at the end of October-December quarter, Vodafone’s ARPU was Rs 145. The company has experienced a decline in subscribers, losing 16.2 million mobile subscribers from April to February, bringing its total base to 220.5 million, data from the telecom regulatory authority of India (Trai) stated.

“The reason our current ARPU level is lower is because of the customer mix. We have a higher percentage of 2G subscribers as compared to competition and that is the reason for the lower ARPU,” Moondra said, adding that a higher 2G base also gives an opportunity to upgrade the subscribers to 4G, which is positive for ARPU.

Currently, 42% of the company’s subscribers are using 2G services. The fundraise will also assist in reducing subscriber churn by improving 4G coverage and introducing 5G.

On the upcoming spectrum auction strategy, Moondra said, the company has a sufficient spectrum portfolio and does not foresee a need for additional spectrum beyond what is up for renewal.

While analysts are bullish about Vodafone Idea’s FPO, they do not expect the company to gain meaningful market share in the near term.

“While the fund-raise should improve Vi’s near-term fortunes, we don’t expect Vi to gain any meaningful market share from peers and remain concerned about potential large equity dilution (on the conversion of government dues),” Kotak Institutional Equities said.

According to the brokerage, the company’s current cash Ebitda of Rs 8,300 crore would not increase sufficiently to meet large annual dues to the government post the moratorium.

City Research said, “the company may still face a cash shortfall from the second half of FY26 once the ongoing moratorium on gov’t AGR (adjusted gross revenue) & spectrum repayments ends, unless the government exercises the option to convert these dues into equity”.

BofA Securities said, “going ahead, assuming VIL raises intended capital, we see VIL’s network coverage to potentially improve”.
In addition to 5G, Vodafone Idea plans to invest approximately Rs 7,000 crore in setting up new 4G sites and expanding the capacity of existing and new 4G sites.

Recently, an Aditya Birla Group entity infused Rs 2,075 crore into the company through a preferential share issue. Under the FPO, the company’s shares will be issued in a price band of Rs 10-11, representing a 26% discount compared to the recently approved preferential issue price to the promoter entity at Rs 14.87. Financial Express