Vodafone Idea’s Stock Rose 10% When the Government Turned ₹36,950 in Debt into Equity

After the government converted ₹36,950 crore in debt into equity, increasing its shareholding to 48.99%, Vodafone Idea’s share price soared. Citi expects this action to improve cash flow and facilitate debt collection.

The price of Vodafone Idea’s shares surged up to 20% on Tuesday to ₹8.15 per on the NSE, as the government is expected to convert its spectrum dues into stock, making it the telecom company’s largest shareholder.

The government has decided to turn ₹36,950 crore of the company’s debt into equity, increasing its ownership in Vodafone Idea from 22.6% to 48.9%.

Following the required clearances from the appropriate authorities, including the Securities and Exchange Board of India, Vodafone Idea will issue 3,695 crore equity shares having a face value of ₹10 each at an issue price of ₹10 each under this agreement. Vodafone Idea’s most recent closing price of ₹6.81 was 47% lower than the issue price of ₹10.

The shares of private promoters Vodafone Plc and the Aditya Birla Group (ABG) would drop to 16.1% and 9.4% after the government’s stake increase. They will, nonetheless, keep operational control.

This action has significant positive ramifications and is an important development, according to brokerage giant Citi. Additionally, the brokerage pointed out that it shows prompt and robust government backing.

Citi predicts that this action will help Vodafone Idea finish gathering the necessary funds to pay off its bank debt and significantly improve its cash flow over the following three years. With further funding from its promoters, the business raised over ₹20,000 crore through its biggest Follow-on Public Offer (FPO) last year.

According to Citi Research, Voda Idea reported on March 30, 2025, that the government had chosen to convert a portion of its outstanding spectrum dues to equity. We believe this key step will have significant positive ramifications.

For Vodafone Idea, Citi has set a price target of ₹12, representing a possible 77% increase from Friday’s closing price. With a target price of ₹470, representing a possible 40.7% increase from the previous closing price, Citi has also maintained its Purchase recommendation on Indus Towers, India’s biggest telecom infrastructure supplier.

Given that Vi, a significant tenant, has had trouble making tower rental payments, the brokerage pointed out that an equity-backed revival of Vodafone Idea might improve Indus Towers’ cash flow picture.

As the telecom tower operator has been under strain because of Vi’s payment delays, Citi said that Indus Towers might benefit if Vodafone Idea stabilizes its business.

“With Voda Idea finally finishing its long-awaited and significant stock raising, the situation has stabilized in recent quarters and should improve. The brokerage stated, “With the ongoing recovery of its past outstanding dues and the start of new tenancy rollouts, which should also enable it to reinstate dividends, we expect Indus to be a significant beneficiary.”

VI’s rental income has been a significant source of danger for Indus Towers. Citi pointed out that the government-supported reorganization would improve short-term cash flows and allay default fears. According to the brokerage, the expansion of 5G networks and the growing need for telecom infrastructure are driving Indus Towers’ long-term growth.

Citi ranked Indus Towers as its best telecom option, with an 8% tenancy CAGR and a core EBITDA CAGR of 10% (not including writebacks). According to the brokerage firm’s FY25–27E projections, we anticipate that Indus Towers would generate a core EBITDA CAGR of 10%, excluding writebacks, supported by a tenancy CAGR of 8%.