The Central government\u2019s decision to convert Vodafone Idea\u2019s (Vi) Rs 36,950 crore spectrum dues into equity will support the telco in expanding 4G coverage, and rolling out fifth-generation (5G) mobile networks to arrest subscriber churn to rival carriers, analysts said. <\/p>\n
\u201cThe government of India\u2019s decision is a material positive for VIL, in our view, as it eases concerns on VIL managing repayments in FY26 and also improves the outlook for a debt raise. Our calculations indicate VIL will need to secure debt funding of ~INR400bn (Rs 40,000 crore) over FY26-27F to manage its dues and capex plans,\u201d Nomura said in a research note Tuesday, seen by ETTelecom. <\/p>\n
The telco has been in discussions with lenders to close a debt funding of Rs 25,000 crore, but has not been successful so far. \u201cWe believe the finalising of the equity conversion will likely enable a faster turnaround on securing incremental capital,\u201d the Japanese brokerage said. <\/p>\n
To date, Vi has raised approximately Rs 26,000 crore via the equity route.<\/p>\n
Vi’s shares closed 20.12% higher at Rs 8.18 on the Bombay Stock Exchange (BSE) Tuesday. <\/p>\n
As per Nomura, Vi was liable to pay Rs 61,000 crore in spectrum dues between FY26 and FY28. However, following the Central government\u2019s decision, the dues have reduced to nearly Rs 20,000 crore over the same period. <\/p>\n
Vi said in a regulatory filing late Sunday that it has been directed by the government to issue 36.95 billion equity shares of the face value of Rs 10 each at an issue price on a par, within 30 days after issuance of orders from the Securities and Exchange Board of India (Sebi) and other authorities.<\/p>\n
Consequently, the government of India\u2019s shareholding in Vi will increase from 22.6% presently to nearly 49%, while existing promoters \u2013 Vodafone and the Aditya Birla Group \u2013 will continue to have operational control of the telco despite their combined stake declining from the current 38.8% to 25.57%. <\/p>\n
Nomura estimates Vi\u2019s average revenue per user (ARPU) will rise to Rs 200 in FY27, versus an ARPU of Rs 173 in the third quarter of fiscal year 2025. <\/p>\n
\u201cWe expect the pace of subscriber loss to moderate in FY26F and VIL to return to modest subscriber growth in FY27F,\u201d it said, adding that while the outlook for Vi has improved, its future remains hinged on closing the debt raise soon which will be essential for the telecom carrier to be able to invest in networks and return to a modest subscriber growth path.<\/p>\n
Jefferies said the government decision will provide some cashflow relief to Vi, which in turn, may support the telco’s network investment and reduce market share shifts to Jio and Airtel. “Given that VIL’s debt situation and cashflow mismatch will remain at uncomfortable levels post-conversion, further interventions will be required,” it said. <\/p>\n
The government’s large equity holding (49% stake) and debt holding (over 2.5x Vi’s market capitalisation post conversion), is likely to align its interests with that of Vi, which should improve the tariff hike outlook and may lead tofurther regulatory relief for the sector, resulting in a net positive for both Jio and Airtel, the American brokerage said.<\/p>\n
Motilal Oswal though said Vi would continue to require more relief from the government of India on AGR dues as well as spectrum payments beyond 1HFY28. “With GoI\u2019s stake rising to 49% after the latest equity conversion, any further equity conversion of dues could lead to GoI\u2019s stake crossing 50%, which could turn Vi into a public sector unit (PSU),” it said. <\/p>\n
IIFL Capital, meanwhile, said that the continued government support may keep Vi afloat in the medium-term, albeit as a distant third-ranked player. “That said, continued dilution in Vi\u2019s shareholding would cap upsides for existing shareholders. If the government were to hypothetically convert all dues owed by Vi, its shareholding in Vi would be ~81%,” IIFL said. <\/p>\n
“We see this equity dilution as a bandage,” analysts at Macquarie said. “With the underlying FCF generation inadequate to organically pay back obligations per timelines, we reiterate significant additional equity dilution risks for minority shareholders,” they added. <\/p>\n
Ambit Telecom separately said Vi remains in a precarious position with a net debt of Rs 1.72 lakh crore, including an adjusted gross revenue (AGR) dues of Rs 75,000 crore, against an annualised Q3FY25 cash EBITDA (earnings before interest, taxes, depreciation, and amortisation) of Rs 980 crore. <\/p>\n
\u201cVi needs tariff hikes the most as it needs to reinvest in 4G population coverage and roll out 5G services to retain its users\u2026We expect a 15% tariff hike in Dec-25, followed by annual tariff hikes in 2026-33, enabling 10% tariff CAGR,\u201d Ambit Capital said in a research note, seen by ETTelecom. <\/p>\n
The telco\u2019s capex should help it stabilise user decline in the second half of fiscal year 2026. \u201cWe believe that the government\u2019s intention isn\u2019t to take control of Vi and, hence, its decision to stop at 49%,\u201d the brokerage said. <\/p>\n
Vi has planned a three-year capex of Rs 50,000 crore to Rs 55,000 crore to invest in 4G and 5G expansion in its 17 priority circles to compete effectively against rivals Reliance Jio and Bharti Airtel, and reduce subscriber churn. <\/p>\n
\u201cQuicker rollout of 4G\/5G sites should help Vi stabilize their subscriber churn, which is essential for survival. VI\u2019s spectrum bands are similar to Airtel, which are extensively rolled out on Indus\u2019 tower. This makes Indus the biggest beneficiary of dues conversion,\u201d said Ambit Capital.<\/p>\n","protected":false},"excerpt":{"rendered":"
The Central government\u2019s decision to convert Vodafone Idea\u2019s (Vi) Rs 36,950 crore spectrum dues into equity will support the telco in expanding 4G coverage, and rolling out fifth-generation (5G) mobile networks to arrest subscriber churn to rival carriers, analysts said. \u201cThe government of India\u2019s decision is a material positive for VIL, in our view, as it eases concerns on VIL managing repayments in FY26 and also improves the outlook for a debt raise. Our calculations indicate VIL will need to secure debt funding of ~INR400bn (Rs 40,000 crore) over FY26-27F to manage its dues and capex plans,\u201d Nomura said in […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-918946","post","type-post","status-publish","format-standard","hentry","category-telecom"],"acf":[],"_links":{"self":[{"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/posts\/918946","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/comments?post=918946"}],"version-history":[{"count":0,"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/posts\/918946\/revisions"}],"wp:attachment":[{"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/media?parent=918946"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/categories?post=918946"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/telecomlive.in\/web\/wp-json\/wp\/v2\/tags?post=918946"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}