Vodafone Idea Ltd. (VI) witnessed a significant 20% jump in its stock price on April 1 after the company announced that the Government of India will convert Rs 36,950 crore worth of spectrum dues into equity shares. This move increases the government's shareholding from 22.6% to 48.99%, making it the largest shareholder while allowing Vodafone Idea’s promoters to retain operational control.

The development also impacted Indus Towers, a key telecom infrastructure provider, whose shares rose 7% as investor confidence in Vodafone Idea's financial future improved.

Government's Second Equity Conversion in Vodafone Idea

This marks the second time the Indian government has converted Vodafone Idea's dues into equity. Previously, in 2023, Rs 16,133 crore of dues were converted into shares at Rs 10 per share.

The latest conversion includes 3,695 crore equity shares at Rs 10 per share, determined based on the volume-weighted average price over the last 90 trading days or 10 days before the reference date (February 26, 2025).

Market Reaction and Stock Performance

The news led to a sharp rally in Vodafone Idea shares, which surged 20% to Rs 8.1 on the NSE by 12:15 pm, compared to the previous close of Rs 6.8 per share.

Similarly, Indus Towers stock rose 6.9% to Rs 357.35 per share, reflecting optimism over Vodafone Idea’s financial stability.

Citi Research Maintains Buy Rating on Vodafone Idea

Citi Research has reaffirmed its ‘buy’ rating on Vodafone Idea, setting a target price of Rs 12 per share, which represents a 76% upside from its last closing price.

However, Citi also warned that despite the short-term relief, Vodafone Idea still faces challenges in raising fresh capital to expand its 4G and 5G networks.

Analyst Views on Vodafone Idea’s Future

Motilal Oswal, a domestic brokerage firm, highlighted that:

• The government’s equity conversion eases Vodafone Idea’s cash flow constraints.

• However, subscriber retention, AGR dues relief, and securing additional funds remain key hurdles.

• Vodafone Idea is still a high-risk, high-reward stock, despite the recent government support.

Motilal Oswal increased its target price for Vodafone Idea shares to Rs 6.5, up from Rs 5 earlier, based on the government's equity conversion at a premium.

Indus Towers Benefits from Vodafone Idea's Stabilization

The Indian government’s commitment to maintaining a stable telecom sector benefits Indus Towers, which relies on Vodafone Idea for payments. Analysts noted:

• Improved cash flow for Vodafone Idea could ensure timely payments to Indus Towers.

• The government’s commitment to a 3+1 market structure (Jio, Airtel, VI + BSNL) provides stability for the telecom sector.

• The latest conversion reduces near-term financial stress on Vodafone Idea, indirectly benefiting Indus Towers.

Vodafone Idea’s Stock Performance Over the Last Year

Despite the 20% rally, Vodafone Idea's stock has lost over 50% of its value in the past year, as concerns over its debt burden, competitive pressures, and delayed fundraising efforts continue to weigh on investor sentiment.

Conclusion

The government’s Rs 36,950 crore equity conversion is a major relief for Vodafone Idea, reducing its financial burden and stabilizing its market position. While analysts see potential upside, challenges such as subscriber retention, AGR dues, and network expansion funding remain critical. Investors will closely watch Vodafone Idea’s next steps, including its ability to raise funds for 5G expansion and improve profitability.

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