Vodafone Idea Stock Surges 26% After Govt Equity Conversion – Buy or Avoid?
Vodafone Idea’s share price surged by 25.88% on Tuesday, reaching ₹8.56 on the NSE, as the government prepared to convert its spectrum dues into stock, becoming the telecom company’s largest shareholder. The scrip closed the day 20.15% higher at ₹8.17.
The government decided to convert ₹36,950 crore of the company’s debt into equity, increasing its stake in Vodafone and Idea from 22.6% to 48.9%.
After securing approvals from the relevant authorities, including the Securities and Exchange Board of India, Vodafone and Idea will issue 3,695 crore equity shares with a face value of ₹10 each at an issue price of ₹10. At ₹6.81, Vodafone and Idea’s last closing price stood 47% below the issue price.
With the government’s increased stake, Vodafone Plc and the Aditya Birla Group (ABG) will see their shares decline to 16.1% and 9.4%, respectively. However, they will retain operational control.
Should You Buy Vodafone Idea Shares Now?
Brokerage giant Citi considers this move a significant development with major positive implications. Citi also emphasized that it highlights the government’s strong and timely support.
The brokerage predicts that this decision will help Vodafone and Idea raise the required funds to repay its bank debt and improve cash flow significantly over the next three years. Previously, the company raised over ₹20,000 crore through its largest Follow-on Public Offer (FPO) with additional funding from its promoters.
How Will Indus Towers Benefit from Vodafone Idea’s Revival?
Citi noted that Indus Towers, a telecom tower operator, has struggled due to Vodafone and Idea’s payment delays. If Vodafone and Idea stabilizes its business, Indus Towers could benefit.
“With Vodafone and Idea completing its long-awaited and significant stock raising, the situation has stabilized in recent quarters and should improve further,” Citi stated. “As Vodafone and Idea recovers past dues and starts rolling out new tenancies, Indus Towers should benefit and may even reinstate dividends.”
