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Vodafone Idea shares surged 10% in early trade on Tuesday, reaching the upper circuit, as investors reacted to the government's decision to increase its stake in the company. Vodafone Idea's stock rally was triggered by the government's decision to convert Rs 36,950 crore worth of spectrum dues into equity. This move will increase the government's stake in the company from 22.6% to 48.99%, making it the largest shareholder. This was at a 46.84 per cent premium to its Friday's closing of Rs 6.81.MOFSL said the equity conversion provides cash flow relief for VIL and is a key medium-term positive development, but stabilisation of its subscriber base, long-pending debt raise, and further relief on AGR dues remain vital for VIL's long-term survival."GoI’s continued commitment to maintaining a 3+1 market construct in the Indian telecom sector and the easing of Vi’s cashflow constraint are also positive for Indus Towers. We retain our Sell rating on VIL with a revised target of Rs 6.5 per share, while we remain Neutral on Indus Towers and would use any bounce to reduce exposure," MOFSL said. Vodafone Idea (VIL) faces spectrum dues repayments totaling Rs 67,000 crore over FY26–28. According to MOFSL, the proposed equity conversion is expected to reduce VIL’s spectrum repayment obligations related to auctions held prior to 2021 by Rs 42,000 crore on a Net Present Value (NPV) basis.Also Read: Govt To Raise Stake in Vodafone Idea From 22.6% to 49%, With Fresh Share Acquisition Worth Rs 37,000 CroreAt 9:20 AM, Vodafone Idea share price was locked with 9.9 per cent gains as against a 0.5 per cent dip in the benchmark BSE Sensex index. Around 33.93 million shares have already changed hands on the BSE and National Stock Exchange (NSE), so far, in trade."The company has been directed to issue 36.95 billion equity shares of the face value of Rs 10 each, at an issue price of Rs 10 each, within a period of 30 days after issuing necessary orders from relevant authorities, including from Securities and Exchange Board of India (Sebi)," Vodafone Idea said in its statement. Post the conversion of Vodafone Idea's dues, owed to the Centre, into equity shares, the Government will hold approximately 48.99 per cent stake in the telco. At present, the Government holds around 22.60 per cent stake. while Vi's existing combined promoter stake would be diluted from around 38.7 per cent, at present, to 25.5 per cent, public shareholders' stake would be diluted from 34 per cent to 23.8 per cent. The promoters, however, will continue to have operational control of the company, Vi clarified. At the end of the December quarter of the previous financial year (FY25), Vodafone Idea owed ₹2,330 crore to banks and financial institutions, down from ₹7,620 crore in the year-ago period. However, the company has deferred spectrum payment obligations of ₹1.38 trillion and an adjusted gross revenue liability of ₹69,020 crore due to the government.Nonetheless, analysts believe the company would need further assistance from the government on AGR (adjusted gross revenue) dues. Motilal Oswal analysts estimate that Vi had ₹67,000 crore in spectrum dues repayments over FY26-28. The proposed equity conversion, they said, would help Vi lower its spectrum repayments pertaining to auctions prior to 2021, by ₹42,000 crore (on NPV basis).However, besides the spectrum dues, Vi also has to repay ₹16,500 crore annually pertaining to AGR dues, starting March, 2026, which are not part of the proposed conversion. "We estimate Vi's cashflow to be insufficient to fund its ongoing capex plans alongside AGR dues repayments. However, given GoI's commitment to maintaining a 3+1 market construct, we believe there could be further relief from GoI on AGR dues," analysts at Motilal Oswal Financial Services said in their report with a 'Neutral' rating and an increased target price of ₹6.5 per share from ₹5 per share. Those at global brokerage Macquarie, too, maintained their 'Neutral' rating on the stock with a target price of ₹7 per share as it doesn't see "an improved tenancy growth outlook". Despite the likely acceleration in capex over the medium-term, they believe gaining back subscribers would be a tall ask for Vi, given its peers' superior free cash flow generation and deeper pockets. Vi, they said, remains a high-risk high-reward play.

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