Vodafone Idea shares: Will VIL turn into PSU? MOFSL says 'Sell', sets target at Rs 6.50

The government's decision to convert Vodafone Idea's upcoming spectrum dues repayment into equity, in line with the provisions in 2021 telecom relief measures, is materially positive for the telecom operator. But MOFSL has kept its 'Sell' rating on the stock in tact, with a revised target price at Rs 6.50 per share. 

This is even as the government would be converting Rs 36,950 crore worth spectrum dues at Rs 10 per share, which is significantly above VIL's current market price. This would avoid any dilution for VIL's equity holders, MOFSL said.

MOFSL said the equity conversion provides cash flow relief for VIL and is a key medium-term positive development, but stabilisation of its subscriber base, long-pending debt raise, and further relief on AGR dues remain vital for VIL's long-term survival. 

"GoI’s continued commitment to maintaining a 3+1 market construct in the Indian telecom sector and the easing of Vi’s cashflow constraint are also positive for Indus Towers. We retain our Sell rating on VIL with a revised target of Rs 6.5 per share, while we remain Neutral on Indus Towers and would use any bounce to reduce exposure," MOFSL said.

Vodafone Idea had Rs 67,000 crore in spectrum dues repayments over FY26-28. MOFSL believes the proposed equity conversion would help VIL lower its spectrum repayments pertaining to auctions prior to 2021, by Rs 42,000 crore on NPV basis. 

After the conversion, VIL would have to repay Rs 8,000 crore in spectrum dues over 2HFY26-1HFY28, along with Rs 2,200 crore annually for the 2021-24 spectrum auctions. Vodafone Idea's current Rs 9000 crore cash Ebitda should largely be sufficient to fund GoI’s spectrum due repayments till 1HFY28, MOFSL said.

MOFSL noted that post the proposed conversion, government's stake in VIL would increase from 22.6 per cent currently to 49 per cent. VIL's existing combined promoter stake would be diluted from 38.7 per cent currently to modest 25.5 per cent and public shareholders’ stake would also be diluted by 34 per cent to 23.8 per cent. 

"However, despite the spectrum due conversion into equity, VIL would continue to require more relief from GoI on AGR dues as well as spectrum payments beyond 1HFY28. With GoI’s stake rising to 49 per cent after the latest equity conversion, any further equity conversion of dues could lead to GoI’s stake crossing 50 per cent, which could turn VIL into a public sector unit (PSU)," MOFSL said.