Vodafone Idea's Rs 25,000 crore rights issue plan received a positive response from analysts, who said the issue will encourage growth and will have healthy minority participation.

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The company's rights issue will open on April 10 and close on April 24. The board has approved the rights issue at a price of Rs 12.50 per share, which is a 60 percent discount to prevailing prices.

Motilal Oswal said, “Rights issue will support liquidity for next 6-8 quarters. Despite the huge fund raise and the estimated EBITDA increase to Rs 126 bn by FY21, net debt is likely to remain at Rs 1,060 bn.” The brokerage maintained ‘buy’ rating on the stock with a price target of Rs 40 per share.

It further added that the rights issue will help in deleveraging the balance sheet significantly. However, it may need another round of fund-raise to survive. But given the cash flow and capex requirements for telcos and the current price plans offered, there exists a huge opportunity to increase ARPU.

Motilal Oswal also added, “There is a huge gap between the product capability of Vodafone Idea and Reliance Jio due to underinvestment in the former’s network. This could reduce over the next 12 months as VIL has aggressive capex plans to bridge the gap and provide robust 4G coverage. Once the network and price arbitrage is reduced, the incremental market share shift should be arrested, which may compel Jio to start taking price hikes.”

Citi believes the steep discount for rights issue should drive healthy minority participation. The brokerage said, “The successful completion of the rights issue will be positive. Vodafone Idea’s progress on post-merger integration and execution on synergies is encouraging.” However, remain on the sidelines as uncertainties still prevail, said the brokerage.

Citi maintained ‘neutral’ rating on Vodafone Idea with a price target of Rs 369 per share.