Vodafone Idea share price surges 26% after govt converts ₹36,950 crore dues into equity. Is it a stock worth buying?

Vodafone Idea share price rallied as much as 25.88 per cent on Tuesday to ₹8.56 apiece on the NSE as the government is set to become the telecom company's largest shareholder by converting its spectrum dues into equity. The scrip finally ended the session at 20.15% higher at ₹8.17.

The government has decided to convert ₹36,950 crore worth of the company's dues into equity, which will raise its stake in Vodafone Idea to 48.99 per cent from 22.6 per cent earlier.

Under this agreement, Vodafone Idea will issue 3,695 crore equity shares with a face value of ₹10 each at an issue price of ₹10 each following the necessary approvals from relevant authorities, including the Securities and Exchange Board of India. The issue price of ₹10 is at a 47% premium to Vodafone Idea's last closing price of ₹6.81.

Following the government's stake increase, private promoters Vodafone Plc and the Aditya Birla Group (ABG) will see their shares decline to 16.1 per cent and 9.4 per cent, respectively. However, they will continue to maintain operational control.

Should you buy Vodafone Idea shares now?

Brokerage firm Citi described this move as a significant development with substantial positive implications. The brokerage also noted that it demonstrates strong and timely support from the government.

According to Citi, this decision is expected to provide considerable relief to Vodafone Idea’s cash flow over the next three years and facilitate the completion of its bank debt fundraising. The company has already secured over ₹20,000 crore through its largest Follow-on Public Offer (FPO) last year, along with additional funds from its promoters.

"In a material development that we view as having significant positive implications, Voda Idea announced (March 30, 2025) that the gov’t has decided to convert part of its outstanding spectrum dues to equity," said Citi Research.

Citi has set a price target of ₹12 for Vodafone Idea, indicating a potential 77% upside from Friday's closing price.

However, domestic brokerages Motilal Oswal Financial Services (MOSL) and JM Financial maintained ‘Sell’ ratings on the stock, setting the Vodafone Idea stock price target at ₹6.5 and ₹9, respectively.

For VIL to turn around into a sustainable telco, JM Financial believes it would require multiple significant tariff hikes that can boost ARPU to ₹380-plus by FY28 (vs. ARPU of ₹163 in 3QFY25). "Further, there is no clarity on VIL's long-pending ₹250 billion debt-raise, which is critical for the execution of its ₹500-550 billion 3-year capex plan to arrest decline in its subscriber market share, the brokerage said.

"GoI's equity conversion provides cash flow relief for Vi and is a key medium-term positive development, but stabilasation of its subscriber base, long-pending debt raise, and further relief on AGR dues remain vital for Vi’s long-term survival, said analysts at MOSL.

It retained a ‘Sell’ rating on Vi with a revised target price of ₹6.5/share, and remains Neutral on Indus Towers and would use any bounce to reduce exposure.

Citi has also retained its buy rating on Indus Towers, India's largest telecom infrastructure provider, setting a target price of ₹470, which suggests a potential 40.7% gain from the previous closing price.

The brokerage noted that an equity-backed recovery of Vodafone Idea could enhance Indus Towers' cash flow outlook, as Vi, a major tenant, has faced challenges in meeting tower rental payments.

How will Indus Tower gain from Vodafone Idea's revival?

Citi stated that Indus Towers could gain if Vodafone Idea stabilises its operations, as the telecom tower provider has been facing pressure due to Vi’s payment delays.

“The situation has stabilised in recent quarters and should improve going forward, with Voda Idea finally completing its long-pending and crucial equity raise. We expect Indus to be a significant beneficiary with the ongoing recovery of its past outstanding dues as well as the commencement of new tenancy rollouts, which should also enable it to reinstate dividends," the brokerage said.

Indus Towers' rental revenue from VI has been a significant risk factor. However, Citi noted that the government-backed restructuring could enhance short-term cash flows and alleviate default concerns. The brokerage remains optimistic about Indus Towers' long-term growth, supported by rising demand for telecom infrastructure and the expansion of 5G networks.

Citi named Indus Towers its top telecom choice, forecasting a core EBITDA CAGR of 10% (excluding writebacks), fueled by an 8% tenancy CAGR.

"On our FY25-27E forecasts, we expect Indus Towers to deliver a core EBITDA CAGR of 10% excluding writebacks, underpinned by a tenancy CAGR of 8%," the brokerage firm said.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.