Govt Becomes Largest Shareholder In Vodafone Idea As Share Price Surges 20%

Vodafone Idea shares experienced a significant surge of 20 per cent on Tuesday, reaching Rs 8.15 per share on the NSE, following the government’s decision to convert Rs 36,950 crore of the company’s spectrum dues into equity. This move will elevate the government’s stake in Vodafone Idea from 22.6 per cent to 48.99 per cent, making it the largest shareholder in the telecom firm.

Under the agreement, Vodafone Idea will issue 3,695 crore equity shares at a face value of Rs 10 per share, with an issue price of Rs 10, representing a 47 per cent premium to the company’s last closing price of Rs 6.81. The conversion is subject to approval from regulatory authorities, including the Securities and Exchange Board of India (SEBI).

Following the restructuring, the stakes of Vodafone Plc and the Aditya Birla Group (ABG) will reduce to 16.1 per cent and 9.4 per cent, respectively. Despite this dilution, both entities will retain operational control over the company.

Leading brokerage Citi described this development as a crucial step with significant positive implications for Vodafone Idea. According to Citi, this equity conversion will offer the company substantial cash flow relief over the next three years, aiding in fundraising efforts for debt repayments.

Vodafone Idea had already secured  Rs 20,000 crore through a Follow-on Public Offer (FPO) last year, with additional funds contributed by its promoters. Citi has maintained a price target of Rs 12 for Vodafone Idea, indicating a potential 77 per cent upside from its previous closing price.

Citi has also retained a buy rating on Indus Towers, India's leading telecom infrastructure provider, with a target price of Rs 470, representing a potential 40.7% gain. The brokerage emphasised that Vodafone Idea’s restructuring could enhance Indus Towers' cash flow stability, as Vi is a key tenant and has previously struggled with rental payments.

Citi noted that with Vodafone Idea's financial situation stabilising, Indus Towers could benefit from the recovery of outstanding dues and the initiation of new tenancy agreements, potentially allowing the company to reinstate dividends.

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“The telecom sector has been gradually stabilising, and with Vodafone Idea finalising its equity conversion, Indus Towers is expected to recover past dues and expand its operations, strengthening its financial position,” Citi stated.

Citi has forecasted a 10 per cent compound annual growth rate (CAGR) in core EBITDA for Indus Towers (excluding writebacks) over FY 25-27, driven by an 8 per cent growth in tenancy. The brokerage firm also highlighted the expanding demand for telecom infrastructure and 5G network rollout as key factors supporting Indus Towers’ long-term growth.