Vodafone Idea soars 14% as govt to convert spectrum dues into equity at Rs 10 per share

Shares of Vodafone Idea Ltd (VIL) climbed 14 per cent in Tuesday's trade as the government decided to convert VIL's upcoming spectrum dues repayment into equity at Rs 10 per share. This was at a 46.84 per cent premium to its Friday's closing of Rs 6.81. While analysts said the relief measures are materially positive for the telecom operator, they believe Vodafone Idea has long way to go to be financially viable.   

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 (VIL) faces spectrum dues repayments totaling  Rs 67,000 crore over FY26–28. According to MOFSL, the proposed equity conversion is expected to reduce VIL’s spectrum repayment obligations related to auctions held prior to 2021 by  Rs 42,000 crore on a Net Present Value (NPV) basis.

Post-conversion, VIL will be required to repay  Rs 8,000 crore in spectrum dues between the second half of FY26 and the first half of FY28. Additionally, the company will continue to make annual payments of  Rs 2,200 crore for spectrum auctions conducted between 2021 and 2024. MOFSL noted that VIL’s current cash Ebitda of  Rs 9,000 crore should be largely sufficient to meet the Government of India’s (GoI) spectrum repayment obligations until the first half of FY28.

Vodafone Idea shares rose 14 per cent upper circuit limit at Rs 7.77. With this, the VIL stock has cut its year-to-date losses to 6.61 per cent.  

Following the proposed conversion, the government's stake in VIL would jump to 49 per cent from 22.6 per cent. VIL's existing combined promoter stake would be diluted to 25.5 per cent from 38.7 per cent. As far as public shareholders are concerned, their combined stake would decline to 23.8 per cent. 

MOFSL said despite the spectrum due conversion, 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 PSU.

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 9,000 crore cash Ebitda should largely be sufficient to fund GoI’s spectrum due repayments till 1HFY28, MOFSL said.