Vodafone Idea Share Price: Major Relief For Telco? Brokerage View

Vodafone Idea Share Price: Shares of Vodafone Idea Ltd (VIL) surged around 20 per cent yesterday, on Tuesday after the telco has announced that the Ministry of Communications has decided to convert Rs 36,950 crore worth of outstanding spectrum dues into equity. This conversion also includes dues that are repayable after the expiry of the moratorium period.

According to the decision, VIL will issue 3,695 crore equity shares, at Rs 10 per share, amounting to Rs 36,950 crore to the Government of India (GoI) within 30 days. This conversion will result in a 50 per cent equity dilution, causing the GoI's shareholding to rise to 49 per cent from the current 22.6 per cent and the promoter group's shareholding to decrease to 25.6 per cent from 38.8 per cent.

Debt Conversion Enhances Visibility for FY26

According to Nomura, the GoI’s decision is expected to significantly ease concerns surrounding VIL’s repayment challenges in FY26 and improve prospects for raising new debt.

Earlier, VIL was liable to pay Rs 61,000 crore in spectrum dues over FY26-28. However, post-conversion, these dues have been reduced to approximately Rs 20,000 crore for the period.

The equity conversion will lead to reductions in repayment obligations of: FY26: Approximately Rs 10,300 crore FY27: Approximately Rs 19,800 crore

For FY26, VIL’s dues include Rs 18,700 crore owed to the government and Rs 2,300 crore in bank debt. For FY27, dues include Rs 23,200 crore in government payments. Additional payments across FY26-27 include Rs 2,200 crore for pre-2021 spectrum auctions and Rs 16,500 crore in AGR dues. For FY27, there is also an additional Rs 5,000 crore for post-2021 auctions.

Need for Incremental Debt Funding

VIL is expected to require debt funding of approximately Rs 40,000 crore over FY26-27 to manage dues and planned capital expenditures. The company has been engaging with lenders to secure a Rs 25,000 crore debt raise.

Vodafone Idea Share Price Target

The Brokerage has reiterated the Buy rating on VIL with a revised TP of Rs 10 (Rs 12 previously).

The brokerage has trimmed FY25-27F EBITDA by 4% by factoring modestly lower subscribers on revising our base assumptions for FY25 and factoring higher network opex. We also update our model for the equity dilution, and lower debt and interest cost.

Nomura expects factor ARPU growth of 13% for FY26-27F, with ARPUs rising to Rs 200 in FY27F. We expect the pace of subscriber loss to moderate in FY26F and VIL to return to modest subscriber growth in FY27F.

Brokerage believes the outlook for VIL has improved, but the future remains hinged on VIL closing its debt raise soon, which we believe is essential for it to be able to invest in networks and return to a modest subscriber growth path.

Disclaimer: The views expressed in this article are purely informational and Republic Media Network does not vouch for, promote or endorse any opinions stated by any third party. Stock market and Mutual Fund investments are subject to market risks and readers are advised to seek expert advice before investing in stocks, derivatives and Mutual Funds.