Vodafone Idea soars 19% on Govt aid; stock a 'high risk' play, say analysts

Vodafone Idea news: Vodafone Idea will issue 36.95 billion equity shares, as part of the debt conversion process, which will increase the Government's stake in Vi to 49 per cent

Vodafone Idea (Vi) shares skyrocketed on Tuesday, hitting an intraday high of ₹8.57 (up 25.8 per cent) on the BSE, as the government’s decision to convert the debt-laden telecommunications provider’s outstanding spectrum auction dues into equity calmed investor nerves.

 

According to its exchange filing, the company has been directed to issue 36.95 billion equity shares to the Government of India, with a face value of ₹10 each at an issue price of ₹10 per share, within 30 days of receiving necessary approvals from relevant authorities, including the Securities and Exchange Board of India.

 

Following the conversion of Vi’s dues into equity, the government will hold roughly a 48.99 per cent stake in the telecommunications company, up from its current 22.6 per cent. The conversion will dilute Vi’s combined promoter stake from around 38.7 per cent to 25.5 per cent, while public shareholders’ stake will drop from 34 per cent to 23.8 per cent.

 

 

However, the promoters will retain operational control of the company, Vi clarified.

 

On the bourses, Vi’s share price closed at ₹8.1 per share, up 18.94 per cent, despite a 1,390-point (1.8 per cent) decline in the benchmark BSE Sensex. Around 2.65 billion shares changed hands on the BSE and the National Stock Exchange on Tuesday.

 

As of the October-December quarter of 2024-25, Vi had deferred spectrum payment obligations of ₹1.38 trillion and an adjusted gross revenue (AGR) liability of ₹69,020 crore owed to the government. 

 

Equity conversion a positive, but more aid needed

 

According to analysts, the equity conversion provides cash flow relief for Vi and is a key medium-term positive. Global brokerage Citi, for instance, called the government’s support a “major” and “timely” move that will provide significant cash flow relief over the next three years and help the company secure long-delayed bank debt.

 

“The conversion of spectrum dues is expected to reduce Vi’s overall net debt by nearly 18 per cent. We estimate Vi’s spectrum dues (for pre-2021 spectrum) payable over 2025-26/2026-27/2027-28 to decrease from ₹11,000 crore/₹25,000 crore/₹25,000 crore to nearly ₹500 crore/₹5,000 crore/₹15,000 crore, implying over ₹40,000 crore of cash flow relief over the next three years,” Citi said in its report, maintaining a ‘buy’ rating and a Vi share price target of ₹12.

 

Despite this, analysts believe the company will need further assistance from the government. Motilal Oswal Financial Services (MOFSL) analysts pointed out that Vi must repay ₹16,500 crore annually for AGR dues starting March 2026, which are not part of the proposed conversion.

 

“We estimate Vi's cash flow will be insufficient to fund its ongoing capital expenditure (capex) plans alongside AGR dues repayments. However, given the government’s commitment to maintaining a 3+1 market construct, we believe further relief on AGR dues is possible,” analysts at MOFSL said in their report, maintaining a ‘neutral’ rating and raising their target price to ₹6.5 per share from ₹5.

 

Global brokerage Macquarie also maintained its ‘neutral’ rating on the stock, with a target price of ₹7 per share, citing the lack of an “improved tenancy growth outlook”.

 

Fundamental concerns linger

 

Despite government support, analysts stress that stabilising Vi’s subscriber base and securing additional relief measures will be imperative to its long-term survival.

 

While Vi’s capex is expected to accelerate in the medium term, analysts believe regaining subscribers will be an uphill battle given its competitors’ stronger cash flow and financial backing. Vi, they said, remains a high-risk, high-reward play.

 

“With the government raising its stake in Vi to 49 per cent following the latest equity conversion, any further equity conversion of dues could push its stake beyond 50 per cent, potentially classifying Vi as a public sector unit,” MOFSL cautioned.