Vodafone Idea equity conversion of upcoming spectrum dues into government equity marks a significant relief step under the 2021 telecom reform package. The government’s decision to convert ₹36,950 crore worth of dues into shares at ₹10 per share is seen as a materially positive development for the telecom operator. However, Motilal Oswal Financial Services (MOFSL) has retained its ‘Sell’ rating on the stock, citing long-term viability concerns and revising its target price to ₹6.50 per share.
Government’s Stake in VIL Set to Rise to 49%
Following the proposed Vodafone Idea equity conversion, the government’s stake in the company would surge from 22.6% to 49%, a move that dramatically shifts the ownership structure:
- Promoters’ shareholding would fall from 38.7% to 25.5%.
- Public shareholders’ stake would be diluted by 34% to settle at 23.8%.
This change in ownership could potentially lead to Vodafone Idea becoming a Public Sector Unit (PSU) if further equity conversions take place and the government’s stake crosses 50%.
Relief on Spectrum Dues but AGR Concerns Persist
Vodafone Idea had a heavy ₹67,000 crore spectrum dues burden scheduled for FY26–28. MOFSL estimates that the equity conversion could reduce these dues by ₹42,000 crore on a Net Present Value basis, mainly for auctions conducted before 2021.
Key remaining dues include:
- ₹8,000 crore in spectrum payments during 2HFY26 to 1HFY28.
- ₹2,200 crore annually for spectrum auctions held during 2021–2024.
MOFSL believes that VIL’s current ₹9,000 crore cash EBITDA should be sufficient to cover these upcoming payments—at least till the first half of FY28.
However, MOFSL warned that adjusted gross revenue (AGR) dues and spectrum payments beyond 1HFY28 still pose a threat to the telco’s long-term viability.
Impact on Indus Towers and Market Structure
MOFSL also commented on how the government’s support for VIL aligns with its strategy of maintaining a 3+1 market structure in India’s telecom sector. The easing of Vodafone Idea’s cashflow constraints is viewed as marginally positive for Indus Towers, a key infrastructure provider.
Despite that, MOFSL has maintained a ‘Neutral’ stance on Indus Towers and recommended using any rally in its stock price to reduce exposure.
Why MOFSL Maintains Its ‘Sell’ Rating
According to MOFSL, although the government’s equity conversion offers immediate cash flow relief, several red flags remain:
- Subscriber base stabilization is still elusive.
- The long-pending debt raise hasn’t materialized.
- Additional government relief on AGR dues is still required.
- Long-term revenue growth and capex requirements remain under pressure.
As a result, despite this large-scale relief, MOFSL continues to advise caution and maintains its Sell rating with a price target of ₹6.50.
What Lies Ahead for Vodafone Idea?
The latest government move shows a clear intent to support VIL’s survival in India’s competitive telecom landscape. However, unless Vodafone Idea addresses its structural issues—like raising new capital, improving ARPU (average revenue per user), and reducing debt—the company might find itself in deeper trouble post-2028.
Further equity conversions could lead to major governance changes, including a potential PSU transition. This would bring new regulatory challenges, potentially affecting investor sentiment.
The Vodafone Idea equity conversion is undoubtedly a short-term positive that prevents immediate dilution and offers breathing space. Yet, analysts remain cautious. MOFSL’s assessment reflects a deeper concern about VIL’s long-term sustainability, calling for more robust steps beyond equity restructuring.
Unless Vodafone Idea strengthens its fundamentals and secures additional support, the risk of default or forced PSU conversion looms large, despite the latest government backin
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