Vodafone Idea Share Price Target: 'Sell' Says Brokerage - Will Govt's Increased Stake Help?

Amid ongoing buzz around the Vodafone Idea shares, Kotak Institutional Equities has given a 'sell' rating to the telecom stock. In a report dated March 28, when the stock price of Vodafone Idea was Rs 7, Kotak Institutional Equities said that the fair price of Vodafone Idea stock was Rs 7 (End of session on March 27). Interestingly, shortly after the report pegged a 'Sell' rating on the VI stock, the company announced that the government has now increased the stake in Vodafone Idea to 48.99 per cent.

Vodafone Idea Share Price Target: What Does The Asset Management Firm Say?

The analyst community is divided over the government's action to buy a stake in VI as several question why the stock has been bought at Rs 10, when the market price of Vodafone Idea shares is Rs 6.4 apiece. "It's a twig. Vodafone Idea owes the government a ludicrous 210,000 cr. Of which it will only reduce the debt by 37,000 cr now. And there is no fresh money coming in. So everyone is getting diluted just like that (sic)," said Deepak Shenoy, Founder, CEO, Capitalmind.

"Govt acquires ₹37,000 cr worth of Vodafone Idea shares at ₹10 per share which is market valued at ₹6.4 per share," asked Chirag Chauhan, CA and auditor.

Government Increases Stake In Vodafone Idea: In a nutshell

In a major decision to support the sinking telecom major Vodafone Idea, the Indian government decided to increase its stake in the firm to approximately 48.99% by converting Rs 369.5 billion in outstanding spectrum auction dues into equity, the company said in a regulatory filing on Sunday.

According to the filing, the Ministry of Communications has directed Vodafone Idea to issue 36.95 billion shares at Rs 10 each, boosting the government's stake from 22.6%. The government is already the largest shareholder of the firm, as per LSEG data.

The move is aligned with the government's September 2021 relief package announced for the telecom sector, a Reuters report said.

As of September 2024, the debt-ridden company's total debt pile stood at Rs 2.16 trillion, the report added.

Govt Stake In VI: How Will It Help?

The company had announced a plan to raise up to Rs 19.80 billion through the issue of preferential shares and the government by increasing its stake in the firm will help the company stay afloat in times of a financial crunch, analysts believe.

Also Read: Will My Tax Be Deducted From April? TDS Under New Tax Regime Explained

Vodafone Idea was formed by a merger between the Indian subsidiary of the UK's Vodafone Group and Aditya Birla Group's Idea Cellular in 2018.