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Can Vodafone Idea's successful Rs 18,000 cr FPO end the telecom duopoly?

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Vodafone's Idea (VI's) mega Rs 18,000 crore follow-on public offer (FPO) was successfully subscribed before bidding closed on April 22. The FPO is part of the debt-laden telecom operator's broader plan to raise Rs 45,000 crore through debt and equity, and may help it challenge the duopoly in the sector.

With the completion of the first part of the fund raise, analysts at Ambit Capital said the company may well be able to raise Rs 45,000 crore through  government backing , anchor investors, and a gamut of qualified institutional buyers (QIBs).

The government holds a little over 32 percent stake in the company.

In addition to the strong institutional support for Vodafone Idea, industrialist Kumar Mangalam Birla’s return to the company’s board and the equity fundraise will prompt banks to lend money to the telecom company, Ambit Capital believes. This will help Vodafone Idea expand its 4G network and roll out 5G services, and give it another chance to improve its market competitiveness.

Buoyed by the completion of the FPO, Ambit Capital placed its "sell" stance on Vodafone Idea as well as Indus Towers under review. Indus Towers also stands to benefit from Vodafone Idea's ability to grow, as new site rollouts will see higher utilisation of its tower network. Vodafone Idea owes around ₹7,000 crore to Indus Towers.

If Vodafone Idea uses the funds effectively to enhance its competitiveness, it could lead to an increase in its share price and cash flow generation, Ambit Capital added.

"With improved financial health, Vodafone Idea may then have the option to either pay off its spectrum and AGR dues, or negotiate with the government to convert unpaid dues into equity at prevailing share prices. This strategic decision would depend on VI's assessment of its financial strength and the most beneficial approach for its long-term sustainability," the brokerage stated.Vodafone Idea's improved health would also help end the duopoly currently seen in the telecom sector, which underwent a disruption after the entry of Reliance Jio.

According to analysts at Ambit, things could change if Vodafone Idea is able to move fast and deploy funds in its network, where it lags on 4G coverage.

Vodafone Idea will also help change the growth trajectory for Indus Towers, if the telecom company does manage to stage a comeback, Ambit said.

Though it is still too early to turn optimistic about VI, it will be interesting to see how Reliance Jio and  Bharti Airtel respond to the rise of the competitor, which lags them by a mile on subscriber base as well as reach.

Vodafone Idea ended the day flat at Rs 12.9, while Indus Towers closed the day at Rs 349.05 on the National Stock Exchange, down 0.67 percent from the previous session.