Vodafone Idea (Vi) shares came under pressure after global brokerage firm Macquarie downgraded the telecom operator's stock rating to 'Underperform' and slashed its target price to Rs 6.50, down from Rs 7. The downgrade comes in response to the recent equity dilution by the Government of India (GoI), which has resulted in a significantly increased government stake in the company, according to an ET Telecom report.
Also Read: Indian Government to Raise Stake in Vodafone Idea to 48.99 Percent
Govt Equity Conversion
Following this downgrade by the brokerage firm, Vi's stock ended 3 percent lower at Rs 7.95 on the NSE on Friday.
The Government of India has decided to convert Vodafone Idea's outstanding spectrum dues for FY26 into equity, raising its ownership in the company from 22.60 percent to 48.99 percent. As a result, the Aditya Birla Group's stake has declined to 9.5 percent from 14.4 percent, while the Vodafone Group's shareholding has dropped to 16.1 percent from 24.4 percent.
Also Read: Banks Wary of Lending to Vodafone Idea Despite Government’s Equity Boost: Report
Vi's Cash Flow Remains Insufficient
While the move underscores the government's intent to support a three-player telecom market, Macquarie had expected an extension of payment timelines rather than another round of equity dilution. The brokerage highlighted that Vodafone Idea's free cash flow remains insufficient, making it challenging for the company to meet its financial obligations organically, without further equity infusions, as per the report.
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Govt Support, Temporary Bandage
Macquarie also pointed out that despite the debt-to-equity conversion, Vi's net debt remains high at USD 22.5 billion, with leverage approaching 10x net debt-to-EBITDA by FY26. The brokerage described the government's move as a temporary "bandage" and flagged potential further medium-term equity dilution, posing risks to minority shareholders.
While EBITDA estimates remained unchanged, Macquarie revised its earnings per share (EPS) projections to account for the impact of the recent equity dilution. The brokerage also lowered its FY27 EV/EBITDA valuation multiple for Vodafone Idea to 11x, reflecting heightened dilution risk—a 15 percent discount compared to Bharti Airtel.
Also Read: Are Vodafone Idea’s Cheap Plans and Top 4G Network Paying Off? Here’s What Subscriber Stats Show
Anticipating Tariff Hikes
In terms of broader industry read-through, Macquarie reportedly said that while Vodafone Idea's lifeline may offer temporary relief for Indus Towers, it does not materially improve tenancy growth prospects. The firm continues to maintain a constructive outlook on Bharti Airtel and Reliance Jio, driven by anticipated industry-wide tariff hikes and improving cash flows.
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Vi in Special Situation
Vodafone Idea remains, according to Macquarie, a "special situation" with its future viability hinging on the Government's continued support for a competitive, three-player telecom ecosystem, the report added.
