Vodafone Idea shares zoom 20%, Indus Towers surges 8% after the government's fresh lifeline; check details

Indus Towers shares also surged in the trade. The stock rose as much as 7.95% to ₹360.90 on the NSE.

The government is already the single-largest shareholder in the battered company with a 22.6% stake, and the fresh move will take its total holding to more than the combined stake of the company's promoter firms – Vodafone and Aditya Birla Group.

VIL promoters hold 14.76% and 22.56% stakes in the company, respectively, at present. However, the promoters will continue to have operational control of the company, Vi said in its regulatory filing.

Vodafone Idea (VIL) said it has been directed to issue 3,695 crore equity shares with a face value of ₹10 each at an issue price of ₹10 each within 30 days after issuance of the necessary order from relevant authorities, including the Securities and Exchange Board of India (SEBI).

What analysts say

Foreign broking firm Citi, according to news reports, has called this move a material development that will have significant positive implications.

The government's move should provide significant relief to Vodafone Idea's cash flow in the next three years and help it complete its bank debt raise, the Citi note said. Vodafone Idea has raised over ₹20,000 crore through its largest follow-on public offer (FPO) last year and infusion of funds by promoters.

"Meanwhile, we also believe it will lift concerns on tariff companies like Indus Towers," Citi said, adding that it has opened a 90-day positive catalyst watch.

"On our FY25-27E forecasts, we expect Indus Towers to deliver a core EBITDA CAGR of 10% excluding writebacks, underpinned by a tenancy CAGR of 8%," Citi said.

A write-back is the opposite of a write-off or write-down. Write back refers to restoring a previously written-off or written-down asset or liability, meaning its value is increased or recovered, often due to events like a previously unpaid debt being paid.

Indus Towers' implied dividend yield of 5% to 7% presents a compelling investment opportunity, according to Citi's note.

Analysts at Macquarie believe that with underlying free cash flow generation inadequate to organically pay back obligations as per the timelines, there will be significant additional equity dilution risks for minority shareholders for Vodafone Idea, the news report further said.

For Indus Towers, the broking firm said it does not see an improved tenancy outlook despite its key tenant Vodafone Idea getting a lifeline.

Indus Towers earns money from telecom operators such as Vodafone Idea (Vi) primarily through Master Service Agreements (MSAs) for tower rental and infrastructure sharing, where Vi pays Indus for using its infrastructure.