Vodafone Idea gets a big relief from the government, a tremendous boom in the stock – is the company’s revival fixed now?

A very important and positive news came out of the past weekend about telecom sector veteran Vodafone Idea (VI). The central government has decided to convert the company’s spectrum liability into equity, which has given a major relief to the financial situation of Vodafone Idea. After this announcement, the company’s stock saw up to 10% upper circuit on Monday.

Government changed the liability of 36,950 crores in equity

The total amount of Rs 36,950 crore of Vodafone Idea has now been converted into equity. Due to this, the government’s stake in the company has increased to 49%. At the same time, the share of Vodafone Group has come down to 16.10% and Aditya Birla Group’s stake has come to 9.4%.

These shares have been released to the government at a price of Rs 10 per share, which is at 46% premium compared to the previous closing price (Rs 6.8). However, the control will still remain in the hands of private management.

42,000 crore reduction in company’s liability

Due to this equity conversion, the total liability of the company has decreased by about Rs 42,000 crore. However, the company still has a loan of Rs 1.7 lakh crore. If the government changes the entire debt in equity in future, its stake in the company can go up to 75-80%.

With this step, the government has clearly indicated that it is committed to maintaining three major players in the telecom sector.

Stock market response – What to invest?

After this news in the stock market, the company’s shares saw a sharp jump. On Friday, where the stock of Vodafone Idea closed at Rs 6.8, on Monday, the market opened up 10% upper circuit.

Opinion of brokerage firms:

• CLSA has increased the company’s rating of the share by 6 to ₹ 10.
• The CITI has given the target of ₹ 12, keeping the advice of ‘purchasing’.
• Macquarie has maintained the ‘neutral’ rating, saying that the possibility of equity dials still remains.

Some analysts have said that there is a risk for minority investors at the moment, but a 90 -day upside catalist should be kept in sight.

Is this only survival or the beginning of revival?

This relief of the government will definitely help Vodafone Idea in “survival”, but the path of “revival” is still long. Although by FY25, the company’s capital structure has improved by Rs 63,000 crore, the big burden of debt remains a matter of concern.

The company still has several challenges such as investment on 5G network, improvement in customer Aadhaar and withdrawing market share. This is possible with the cooperation of the government, but this will require strong business strategy and time.

Advice for investors

• It is possible to boom in the stock in short term, but long -term investors should be cautious.
• This can be a chance for high -risk investors, but normal investors wait.
• The government’s cooperation can bring the company back on track, but it will not happen immediately.

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