Vodafone Idea is a key stock in focus. The share price has surged 10% in early trade, after the Govt approved the conversion of Vi’s upcoming spectrum dues repayment into equity. This is in line with the provisions in 2021 telecom relief measures. The total amount to be converted into equity shares is Rs 36,950 crore, with Vi issuing 3695 crore shares (at Rs 10/share). Though the street believes that this could ease out medium-term cash flow for Vodafone Idea, the AGR dues continue to be a key overhang for the stock.
Motilal Oswal analysts recommend Sell on the stock. Meanwhile Citi sees over 70% upside in the stock and revised the target price higher. After the issuance, the Govt’s stake in Vi would rise to 49% from 22.6%. Vi’s existing promoters will continue to have operational control, albeit with a modest 25.5% stake.
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Motilal Oswal has a ‘Sell’ recommendation on the stock with the target price revised slightly higher at Rs 6.50 per share from Rs 5 per share. “Vi remains a high-risk high-reward play,” according to Motilal Oswal. The big concern for them is despite the spectrum due conversion into equity, “Vi would continue to require more relief from the Govt on AGR dues as well as spectrum payments beyond H1FY28.”
The Govt’s decision to convert Vi’s outstanding spectrum auction dues pertaining to spectrum auctions would reduce Vi’s spectrum repayments by Rs 42,000 crore over FY26-FY28 and ease its cash constraints considerably till H1FY28, according to them.
With Govt’s stake rising to 49% after the latest equity conversion, “any further equity conversion of dues could lead to Govt’s stake crossing 50%, which could turn Vi into a public sector unit (PSU).”
Vi has not seen any significant operational improvement as tariff hike benefits have been offset by continued subscriber losses. We believe stabilization of Vi’s subscriber base, along with further relief measures from GoI, remains imperative for Vi’s longterm survival. Despite the likely acceleration in capex over the medium term, we believe gaining back subscribers would be a tall ask for Vi, given its peers’ superior free cash flow generation and deeper pockets.
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