The federal government’s resolution to transform Rs 36,950 crore dues of Vodafone Concept’s (VIL) into fairness is a giant optimistic, Citi stated on Monday. Whereas this transfer will improve the federal government’s shareholding in VIL from 22.6 p.c to 49 p.c, operational management will stay with the promoters. “We view this as a significant show of assist by the federal government in a really well timed method, which ought to present important money stream aid to VI within the subsequent 3 years and assist it full its financial institution debt increase,” Citi stated in its newest report on Monday. The transfer additionally lifts issues on tower firms like Indus Towers.
Additionally Learn: Indian Authorities to Elevate Stake in Vodafone Concept to 48.99 %
Authorities’s Fairness Conversion Plan
The Indian authorities has determined to transform Rs 36,950 crore of VIL’s excellent spectrum public sale dues into fairness, below the provisions of the September 2021 telecom reforms package deal. VIL introduced this growth in an trade submitting on March 30. In consequence, the federal government’s shareholding in VIL will improve to 48.99 p.c from 22.6 p.c. Nevertheless, VIL’s promoters will proceed to retain operational management of the corporate.
Citi described this “materials growth” as having important optimistic implications for the corporate.
Citi’s Perspective on the Improvement
“The conversion of spectrum dues to fairness will convey down VI’s general web debt by practically 18 p.c. We estimate VI’s spectrum dues (for pre-2021 spectrum) which might be payable over FY26/27/28E might scale back from Rs 110/250/250 billion (Rs 11,000/25,000/25,000 crore) to almost Rs 5/50/150 billion (Rs 500/5,000/15,000 crore), implying over Rs 400 billion (Rs 40,000 crore) of money stream aid over the subsequent three years…be aware that annual spectrum funds of about Rs 22 bn (Rs 2,200 crore) for post-2021 spectrum plus annual AGR funds of round Rs 165 bn (Rs 16,500 crore) would stay payable,” the report stated.
This could assist VI transfer one step nearer to finishing its long-delayed debt increase from banks, Citi added.
“Moreover, the continued launch of 5G companies in choose cities (Mumbai already launched) ought to enhance sentiment across the firm arresting subscriber losses going ahead,” the report famous.
“Authorities has, in step with the September 2021 reforms and assist package deal for telecom sector has determined to transform the excellent spectrum public sale dues, together with deferred dues repayable after expiry of the moratorium interval, into fairness shares to be issued to the Authorities of India…,” VIL stated in an trade submitting on Sunday.
“Publish the aforesaid issuance of fairness shares, the Authorities of India shareholding within the firm will improve from present 22.60 per cent to approx. 48.99 per cent. The promoters will proceed to have operational management of the corporate,” VIL acknowledged.
Additionally Learn: Are Vodafone Concept’s Low-cost Plans and High 4G Community Paying Off? Right here’s What Subscriber Stats Present
Implications for 5G Rollout
“The corporate’s steadiness sheet leverage has remained uncomfortably excessive and had worsened following the antagonistic Supreme Courtroom verdict on the AGR challenge in Oct 2019. Nevertheless, authorities strikes together with a four-year moratorium on spectrum & AGR funds have supplied materials money stream aid, whereas the completion of the long-delayed fairness increase ensures enough capital for the corporate to reinvest within the community and scale back the hole vis-a-vis its two friends on 4G protection and 5G rollouts,” the report added.
Additionally Learn: Vodafone Concept 5G Trials in Mumbai: Speeds Attain As much as 243 Mbps
Funding technique
“In addition to the spectacular Jun 2024 tariff hikes taken by the telcos, we’re moreover enthused by the next developments that drive our constructive stance: 1. A discernible shift in stance by market chief Jio in direction of monetisation; 2. The height of aggressive depth is now seemingly behind us; 3. Strikes by Jio and Bharti to monetise 5G are a transparent optimistic. Completion of the continued debt increase stays key to observe,” Citi stated.
Dangers
Dangers highlighted by Citi embody, “1. Aggressive depth worsening, resulting in disappointing tariff hikes in future; 2. No discount in subscriber churn; 3. Decrease than anticipated tempo of 4G subscriber additions; 4. Delay in 5G roll-outs; 5. Greater-than-expected dilution as and when the federal government converts future dues to fairness.”
Additionally Learn: Monetising 4G and 5G: Key Takeaways to Date and What’s Subsequent?
“We retain our Purchase/Excessive danger score with a Rs 12 goal value,” the brokerage stated in its report dated March 31, 2025.
