Global brokerage firm Citi has a 'Buy (High Risk)' rating on Vodafone Idea, with a price target of Rs 12. In its research report dated April 13, 2025, the firm noted that the government's recent conversion of Rs 36,950 crore in Vi's spectrum dues into equity—resulting in a 49 percent stake—could provide a boost to the company's pending Rs 25,000 crore debt raise.
Annual Dues Significantly Reduced
"The investment-grade credit rating should, in our view, provide a meaningful boost to Vi's efforts to complete its long-delayed bank debt raise, as this is typically one of the key requirements for banks to provide lending," Citi Research said.
The brokerage added that following the equity conversion, Vi's annual dues to the government (spectrum and adjusted gross revenue) for FY26, FY27, and FY28E are now reduced to around Rs 19,000 crore, Rs 23,000 crore, and Rs 32,000 crore respectively, down from approximately Rs 30,000 crore, Rs 43,000 crore, and Rs 43,000 crore earlier.
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Assuming Fundraise of Rs 25,000
"Assuming VI were to succeed in closing out its Rs 25000 crore bank debt funding, which is crucial for the company's planned capex, we estimate no cash shortfall in FY26E but a potential shortfall in FY27E (primarily due to the high AGR amount payable of Rs 16500 crore per annum). Vi remains in discussions with the government for potential relief on the latter," Citi Research said.
"With the company now coming back into the investment grade rating, which is the requirement for the banks to provide funding, the debt funding discussions should now progress in the right direction," a Vi spokesperson told ETTelecom in a written response.
ICRA Revises Rating
Following the government's equity conversion, credit rating agency ICRA has assigned Vi an investment-grade rating of BBB-. Vi's last upgrade was in June 2024, when CARE Ratings raised its rating from B+ to BB+, following the successful completion of its Rs 18,000 crore FPO.
Vodafone Idea, in an exchange filing on April 11, said: "ICRA Limited, has assigned BBB- (Stable) rating to the Long-Term Fund Based Facilities of the Company as per the rating letter issued to the Company today (i.e. on April 11, 2025)."
"We believe the recent equity conversion by the government and the subsequent credit rating upgrade to investment-grade are two material positives for Vi, increasing the likelihood of the company completing its pending Rs 25000 crore debt raise," the brokerage firm said.
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It added that a successful fundraise would also be a key catalyst for Indus Towers by lifting concerns surrounding new tenancies from VI and its future cash flow situation.
Earlier this month, the government agreed to convert Rs 36,950 crore of Vi's outstanding spectrum dues into equity, raising its stake in the telecom company from 22.6 percent to 48.99 percent.
So, What Are the Risks for Vi?
Citi has rated Vi as a high-risk investment, citing the company's over-leveraged balance sheet. Continued government support remains critical, especially with the sharp rise in government debt repayments that will become due from Oct 2025, once the ongoing moratorium ends and also as the possibility of AGR relief has gone following the dismissal of the company's curative petition by the Supreme Court.
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Citi also noted that disappointing future tariff hikes could prevent the stock from reaching the target price. Other risks include a slower-than-expected pace of 4G subscriber additions, delays in 5G rollout, and higher-than-expected dilution if the government converts additional dues into equity.
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