Vodafone Idea's (VIL) upcoming Rs 18,000-crore follow-on public offer (FPO) is expected to provide a much-needed infusion of capital, potentially improving its near-term prospects and aiding in subscriber retention. However, analysts caution that significant market share gains from its larger competitors may remain elusive despite the capital raise.

In a report by Kotak Institutional Equities, analysts expressed optimism regarding the FPO, considering it a positive step for VIL's financial health, albeit one that has been considerably delayed. The infusion of funds is expected to address the telecom operator's network coverage gap, enhancing its competitiveness vis-a-vis its peers to some extent. Additionally, the reduction in VIL's bank debt is expected to facilitate further funding opportunities from financial institutions.

While the FPO is seen as a means to bolster VIL's near-term performance, analysts remain sceptical about the company's ability to significantly enhance its market share relative to competitors. Concerns regarding potential equity dilution, particularly stemming from government dues conversion, loom large. In a worst-case scenario, the government could emerge as the majority stakeholder, limiting upside potential for minority investors.

Utilising the proceeds from the FPO to enhance 4G coverage is expected to aid in mitigating market share losses in the short term. However, analysts assert that reclaiming lost market share from larger rivals such as Bharti Airtel and Reliance Jio remains a formidable challenge. VIL has experienced a notable decline in market share since its merger, primarily due to inadequate network investments.

Despite efforts to bridge the network coverage gap, VIL is expected to lag behind its competitors in 5G coverage, posing further challenges to market share recovery. Peers are likely to outspend VIL on customer acquisition, thereby limiting its ability to make inroads in the market.

Analysts expect potential relief measures from the government, including an extension of the moratorium and partial waivers on adjusted gross revenue (AGR) dues. However, a complete write-off of government dues for any specific company appears improbable. Kotak Institutional Equities foresees VIL converting a substantial portion of government dues into equity over time, leading to significant equity dilution for non-government investors.

BofA Securities echoed similar sentiments, maintaining an 'underperform' rating on VIL. While acknowledging the potential implications of the FPO, BofA Securities stressed that it does not alter its fundamental outlook on the company. However, the potential transaction could impact other telecom players, with tower infrastructure firms like Indus likely to benefit from increased site rollouts.

VIL's persistent subscriber losses over the past 12-24 months have translated into market share gains for competitors Bharti Airtel and Jio. Although an improved network coverage following the FPO may slow down subscriber attrition, Bharti and Jio are poised to continue their market dominance, particularly with investments in 5G technology.

(With PTI inputs)