Vodafone Idea shares surge 20% after government’s spectrum dues conversion

The Vodafone Idea (Vi) stock surged almost 20% Tuesday morning on BSE, just days after the government resolved to convert a sizeable chunk of the telco’s spectrum dues into equity shares worth Rs 36,950 crore.

Analysts said the government’s move is slated to provide more than Rs 40,000-crore of cash flow relief and potentially enable the struggling telco to close its pending debt-raise by December 2025.

They, though, said Vi would require a significantly higher level of debt funding — well above the previously targeted Rs 25,000 crore — to manage its upcoming government dues and capex plans after the moratorium on its regulatory payments ends in September.


“The outlook for Vi has improved, but the future remains hinged on the telco 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,” Nomura Research said in a note seen by ET.

The Japanese brokerage said as per its calculations, Vi would need to “secure debt funding of Rs 40,000 crore over FY26-27” to manage its dues and capex plans.

Debt funding from banks is vital for Vi to implement its targeted capex plan of Rs 50,000-55,000 crore over the next three years to expand its 4G operations in priority markets and roll out 5G in India’s top cities. It has raised around Rs 26,000 crore via the equity route but bank funding has hitherto been delayed owing to lack of clarity over AGR liabilities.

But on Tuesday afternoon, Vi shares were trading 18.8% higher at Rs 8.09 on the BSE. This has boosted the company’s market capitalisation to around Rs 57,828.36 crore from around Rs 48,619 crore last Friday.

Analysts, though, cautioned that even after the latest conversion of $4.3 billion (Rs 36,950 crore) worth of Vi’s spectrum dues into equity by the government, the telco’s net debt to Ebitda ratio would remain at a high 18x.

“Vi’s leverage levels will remain uncomfortable even after this conversion at 18x Ebitda and the telco will need tariff hikes and/or further regulatory relief,” said Jefferies.

IIFL Securities estimates Vi’s regulatory payments (towards spectrum and AGR liabilities) in FY26/FY27/FY28 will decline meaningfully, but still remain substantial at Rs 18,600 crore/Rs 23,600 crore/Rs 33,100 crore respectively from the previously estimated Rs 29,000 crore/Rs 43,400 crore/43,400 crore levels.

“The latest conversion reduces Vi’s cumulative government payouts over FY26-28 by Rs 40,000-Rs 75,000 crore but its underlying free cash flow (FCF) generation is still inadequate to cover the government payments,” the brokerage said.

Vi’s underlying FCF of Rs 4,100 crore is likely to fall well short of Rs 23,600 crore required for meeting regulatory payouts in FY27 even after assuming another 15-20% tariff hike and lower capex in FY27, the brokerage added.

Analysts see a strong case for further government interventions — as in more conversions of Vi’s statutory dues into equity — given that the telco’s debt situation and cashflow mismatch will likely remain at uncomfortable levels.

“Continued government support is likely to keep Vi afloat even in the medium-term, albeit as a distant No 3 player. If the government were to hypothetically convert all dues owed by Vi, its shareholding in the telco would be 81%,” said IIFL.

Analysts, however, expect tower infrastructure services provider, Indus to be the biggest beneficiary of key client Vi’s latest spectrum dues conversion. This, since the resultant cash flow relief will not only improve Vi’s capex outlook but also allay concerns around potential delays in payments/receivables buildup, which are both positives for tower vendor, Indus.

“Indus would get 2/3rd or 70% share of Vi’s incremental rollout over FY25-28 as the telco’s spectrum bands and Bharti Airtel’s are similar, enabling tenancy to rise to 1.95x in FY28E from the present 1.65x,” Ambit Capital said in a research note.

Airtel has extensively rolled out its network on Indus, and analysts expect Vi to do the same as it has similar spectrum bands. Both telcos are also rolling out 5G networks via the NSA (non-standalone) mode that uses existing 4G network infrastructure and airwave resources.

In this context, Ambit added that Vi has been enhancing infrastructure by deploying macro sites and high-powered small cells to tackle coverage and capacity challenges, where Indus dominates the market.

Vi, born via a merger between erstwhile Vodafone India and Idea Cellular in August 2018, has been struggling ever since amid intense competition, weak cash flows unsupportive of necessary capex, and subscriber attrition triggered by its inability to provide pan-India 5G services yet. Over the past seven years, it has steadily lost subscriber and revenue market share to bigger rivals Reliance Jio and Bharti Airtel.

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