Vodafone Idea shares surge 20% as government converts Rs 36,950 crore dues into equity

Investments Indian Investments

Posted by NewAdmin on 2025-04-01 08:46:25 |

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Vodafone Idea Ltd. (VI) shares surged by 20 percent in trade on April 1, following the company’s announcement that the Central government would convert its outstanding spectrum dues into equity shares. This decision led to a significant rise in investor confidence, as the beleaguered telecom operator saw its stock price jump to Rs 8.1 on the NSE, marking a 19 percent increase compared to the previous session’s close. Additionally, shares of Indus Towers, which is indirectly impacted by Vodafone Idea’s financial stability, also rose by approximately seven percent.

The government’s decision involves the conversion of spectrum dues worth Rs 36,950 crore into equity shares. Vodafone Idea will issue around 3,695 crore equity shares at Rs 10 per share to the government, effectively increasing the government’s stake in the company from 22.6 percent to 48.99 percent. Despite this increase, the promoters will retain operational control over the telecom operator, as clarified by the company in a regulatory filing.

The conversion is part of the broader reforms under the Telecom Reforms Package announced in September 2021. The Ministry of Communications issued the approval order on March 29, 2025, which Vodafone Idea received the following day. This marks the second instance where the government has converted debt into equity for the telecom operator. The first instance took place in 2023 when Rs 16,133 crore of debt was converted at the same share price of Rs 10.

Analysts and brokerage firms have reacted positively to the development. Citi Research, an international brokerage, reaffirmed its buy rating on Vodafone Idea, highlighting that the move provides immediate financial relief and reduces cash flow constraints. The firm maintained a target price of Rs 12 per share, which indicates a significant upside from the last closing price. However, the brokerage also cautioned that despite this relief, Vodafone Idea still faces challenges related to raising fresh capital for the expansion of its 4G and 5G networks.

Domestic brokerage firm Motilal Oswal also echoed a similar sentiment, stating that the government’s equity conversion is a medium-term positive development. However, the firm emphasized that the telecom company must stabilize its subscriber base, secure long-awaited debt funding, and address the issue of adjusted gross revenue (AGR) dues to ensure long-term sustainability. Motilal Oswal raised its target price for Vodafone Idea shares to Rs 6.5 from Rs 5, reflecting cautious optimism.

Despite the positive market reaction, Vodafone Idea shares have lost more than 50 percent of their value over the past year. This decline reflects lingering investor concerns regarding the company’s financial health, particularly its ability to compete with industry peers in the rapidly evolving telecom sector. While the government’s involvement offers temporary relief, the company’s long-term prospects still hinge on resolving its funding issues and successfully implementing network upgrades.

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