Vodafone Idea FPO: Know how FPO is different from IPO as India’s largest follow-on public offer open for subscription

Vodafone Idea is all set to launch its follow-on public offer (FPO) worth ₹18,000 crore on Thursday, April 18. The FPO, entirely a fresh issue of 1,636.36 crore shares, will close for subscription on Monday, April 22.

The debt-laden telecom operator, which owes the government ₹2.1 lakh crore in debt, is going to launch its FPO as a part of the ₹20,000 crore fund raising proposal approved by its board in February.

The company has already raised ₹2,000 crore through preferential equity issuance to promoters ahead of the public offering.

The company has set aside 50% of the FPO for qualified institutional buyers (QIBs), 15% for non-institutional investors (NIIs), and the remaining 35% for retail buyers.

Vodafone Idea FPO price band has been fixed in the range of ₹10 to ₹11 per unit. The FPO lot size for an application is 1,298 shares. Retail investors will need a minimum of ₹14,278 to apply for one lot of FPO shares.

Shares of India’s third largest telecom services provider spurted by 4.24% to hit a high of ₹13.5 per share on the NSE on the FPO launch day. More than 29 crore shares of the company changed hands on stock exchanges. VIL shares are trading 3.09% higher at ₹13.35 on the NSE at 11.10 am on Thursday.

The Vodafone Idea FPO allotment date is tentatively scheduled as April 23. Refunds to unsuccessful applicants and credit of shares to successful bidders will take place on the same day on April 24. The company's FPO shares are expected to be listed on the BSE and the NSE on April 25.

Currently, Vodafone Idea is the third largest telecom operator in the country and the 6th largest globally in terms of number of subscribers.

After the FPO, Vodafone Idea will be able to secure more bank funding as its bank debt will have been significantly reduced, according to market reports.

Vodafone Idea is expected to utilize the net proceeds from the FPO to purchase equipment for expanding network infrastructure, set up new 4G sites, enhance the capacity of existing 4G sites, and deploy new 5G sites.

Vodafone India and Kumar Mangalam Birla-led Idea Cellular merged their businesses to create India's biggest telco with over 400 million customers in 2018. Idea Cellular, an Aditya Birla Group company, launched its IPO 16 years ago, in February 2007.

Now, 16 years later, the merged entity, Vodafone Idea Ltd, is coming up with India's largest FPO worth ₹18,000 crore.

The follow-on public offer could be the largest FPO so far in India after successful subscription. The last biggest FPO was worth ₹15,000 crore by Yes Bank in 2020.

To know more and pre-apply for Vodafone Idea FPO, click here

What's the difference between an IPO and an FPO?

For stock investors it’s quite common to come across terms like initial public offer (IPO) and follow-on public offer (FPO). Both are the routes for the companies to raise funds directly from the primary market by diluting equity stake.

When a company issues its shares to the public for the first time and lists its shares on a stock exchange, this is called an IPO. With the launch of the IPO the companies go public and their shares get listed on the BSE or NSE or on both the exchanges.

On the other hand, when a listed company issues additional shares to the public in a bid to generate more capital for expansion and other purposes, it's called FPO. Basically, an IPO is when a company first starts selling its shares while an FPO is launched at a later stage to generate additional through equity.

Here’s how FPO works

The companies generally float FPOs for raising additional funds for expansion or debt settlement. This can be done through two routes.

In the first case, the company issues an additional number of shares for the public while the value of the company remains the same. This is known as dilutive FPO. As the number of shares goes up the price of each equity share comes down and hence the earnings per share (EPS) could drop.

In the second method, the large shareholders of the company may like to divest their stake by offering to sell a portion of their privately held equity in the open market. In this case, generally directors or promoters of the company offer more shares for sale. The company’s total number of shares available remains same and thus the valuation does not get affected.

Opportunity for investors in IPO and FPO

The investors can participate in bidding of both IPOs and FPOs. The successful bidders, who are allocated shares, get a part ownership in the company. Many companies also set aside a portion of the public issue for their employees, allowing various benefits like profit sharing.

However, investing in FPOs could be less riskier compared to IPOs. While you invest in IPOs, you pick a stake in a private company and the future performance of the stock after getting listed remains unknown. In FPOs, you apply for shares of a listed company. Here, the share price trend, company fundamentals and future prospects help you to make an informed decision. At the same time an FPO is a good opportunity to increase the stake in a company which has strong growth prospects or a past record of robust performance.

To know more about IPOs listing, schedule and upcoming IPOs, click here