Vodafone Idea Stock Surges 20% Following Government’s Spectrum Dues Conversion

On Tuesday, Vodafone Idea (Vi) saw its stock price jump 20% following the Indian government's decision to convert INR 36,950 crore of the telecom company's spectrum dues into equity. This is supposed to provide Vi with the cash flow relief it so desperately needed to the tune of INR 40,000 crore, which, in turn, was supposed to ease some of the financial strain that was pushing Vi down toward the bankruptcy option.

Impact of the Government’s Decision

Spectrum dues being converted into equity may reduce the immediate financial burden on Vodafone Idea Limited, but it is still facing severe challenges. According to Nomura Research, Vi needs to find 40,000 crore rupees ($4.8 billion) in 2026 and 27 through debt to cover capital expenditures and pay back dues to the government that are due starting next month. The deferred payment is part of a National Company Law Tribunal order that permits Vi to pay in installments through FY27.

To maintain operations and restore its competitive position, Vi aims to invest INR 50,000-55,000 crore over the next three years. This funding will serve two main purposes: to expand 4G services in important markets and to initiate 5G rollout in major urban centers. So far, the company has managed to sock away INR 26,000 crore through equity. Its other primary funding source, banks, has held back due to uncertainty surrounding Vi's past and projected future revenues.

Potential Government Interventions and Industry Impact

Given Vi's present levels of debt and cash flow issues, analysts expect that further interventions by the government, including the conversion of additional statutory dues into equity, may be required to keep the telco viable. If all the dues were converted into equity, the government's stake in Vi could rise to 81%, effectively making it a state-run company.

On the industry front, telecom infrastructure provider Indus Towers is expected to benefit from Vi's now improved financial state. Ambit Capital projects that Indus will receive 70% of Vi's new increments from rollout, effective FY25, if not sooner, going through FY28. The upticks are expected to happen because, as Ambit notes, Vi's spectrum bands are now closely aligned with those of Bharti Airtel, leading to what should be a significant uptick in network tenancy for Indus Towers at Vi in the next four years.

Vi's Future

Vi is the result of the merger of Vodafone India and Idea Cellular in 2018. It has been struggling, however, due to the fierce competition from Reliance Jio and Bharti Airtel. Its inability to invest in pan-India 5G services has not helped, and it has lost subscribers and market share. The government's move to provide it assistance is a short-term relief. But the telco has a long, long way ahead to traverse before it can come back to financial health. It will require a massive infusion of cash, some hike in tariffs, and likely some more assistance from the government back in the telecom sector to come even close to stability.