Vodafone Idea Nearing PSU Stock Status; What It Means For 58 Crore Small Shareholders? – News18
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Vodafone Idea Ltd. will now have the government become its single-largest shareholder; What small shareholders should know
The government’s holding in Vodafone Idea will rise from 22.60% to nearly 48.99%. (Reuters File Image)
Vodafone Idea Share Price: Debt-laden telecom service provider Vodafone Idea Ltd. is set to have the Indian government as its single-largest shareholder after opting to convert its spectrum dues into equity. Following this development, the stock surged 20% on Tuesday, April 1.
Post-conversion, the government’s stake in Vodafone Idea will rise to 48.99%, up from its current holding of 22.6%.
Shares will be issued at Rs 10 apiece, representing a 47% premium to Vodafone Idea’s last Friday closing price. The stock is reacting to this development on Tuesday due to Monday’s trading holiday.
As of last Friday’s close, Vodafone Idea shares were trading 38% below the Rs 11 price at which it issued shares to institutions during its Follow-on Public Offer (FPO) last year. The telecom firm had raised Rs 18,000 crore through India’s largest FPO to date.
At the time of its FPO, Vodafone Idea had 36.18 lakh retail shareholders (those with an authorized share capital of up to Rs 2 lakh), holding a 3.7% stake as of March 2024. By year-end, this had risen to 58.34 lakh shareholders with a 7.63% stake.
The company is set to disclose its March quarter shareholding data for FY25, which will reveal whether retail investors held onto their shares or exited amid the correction.
Meanwhile, domestic mutual fund holdings increased to 3.66% by December 2024, up from 2.06% in March 2024, though no single fund holds more than a 1% stake.
Analysts’ Take
Citi analyst Saurabh Handa called the government’s equity conversion a “major display of support,” noting it should provide significant cash flow relief for Vodafone Idea over the next three years, helping it secure bank funding.
The conversion will reduce Vi’s overall net debt by 18%. Citi estimates that spectrum dues payable over FY26/27/28 could drop from Rs 110/250/250 billion to Rs 5/50/150 billion, providing Rs 400 billion in cash flow relief over three years.
“This should help Vi move one step closer to completing its long-delayed debt raise from banks,” Citi said.
However, Vi still faces an annual repayment of Rs 16,500 crore for AGR dues starting March 26, which are not included in the spectrum dues conversion. Motilal Oswal estimates Vi’s cash flow remains insufficient to fund ongoing capex and AGR repayments, but given the government’s commitment to a three-player telecom market, further relief may be possible.
“We believe stabilizing Vi’s subscriber base, along with further government relief, remains critical for its long-term survival. Despite likely capex acceleration, winning back subscribers will be challenging given peers’ superior free cash flow and financial strength,” Motilal Oswal noted.
Brokerage Ratings
– Citi: Retained ‘Buy’ with a high-risk rating and a target price of Rs 12.
– Macquarie: Maintained a ‘Neutral’ rating with a target price of Rs 7.
– Motilal Oswal: Raised target price to Rs 6.5 (from Rs 5 earlier), citing the government’s equity conversion at a premium.
– Nomura: Trimmed FY25-27 EBITDA estimates by 4%, reducing its target price from Rs 12 to Rs 10. It expects subscriber loss moderation in FY26, with modest growth resuming in FY27, contingent on Vi securing its debt raise.
Stock Performance
Vodafone Idea’s stock remains below its FPO price of Rs 11 and is over 60% off its 2024 peak of Rs 19.18.