What next for Vodafone Idea? :-ET used here for Educational purposes only for students

 Vodafone Idea’s ongoing INR45,000 crore fundraise through a mix of equity and debt will improve the fortunes of the company, albeit temporarily.

That’s because challenges remain in the long run, particularly after the second half of FY26, when the moratorium ends on spectrum and AGR payments.

As per analysts, the fundraise will enable Vodafone Idea (Vi) to ramp up network capex and narrow the gap with Reliance Jio and Bharti Airtel on 4G coverage and 5G rollout. “Combined with potential tariff hikes after elections and possibility of AGR relief (matter pending in Supreme Court), this should significantly boost VIL’s cash flow position,” Citi Research said in a report.

The company is planning to raise INR18,000 crore through a follow-on public offer (FPO) and another INR25,000 crore through debt. In addition, the company has already approved raising INR2,075 crore from a promoter entity through a preferential share issue.

The company plans to utilise 70% of the FPO proceeds for boosting 4G coverage and capacity and 5G rollout. It will strengthen Vi's network, allowing the company to arrest 4G market share losses in the near term, say analysts.Vi has lost 19% of its market share since Vodafone’s merger with Idea due to inadequate network spending. “We expect Vi to bridge the network coverage gap on 4G and arrest some of the market share losses. However, the gap in 5G coverage (versus larger peers) would still remain significant,” Kotak Institutional Equities says.

Further, the fortunes of Vi depend a lot on the government's decision to convert more dues into equity going forward. Analysts feel that the company may still face a cash shortfall post the second half of FY26 when the moratorium on adjusted gross revenue (AGR) dues and spectrum repayments ends. “…unless the government exercises the option to convert these dues into equity – this remains a key uncertainty from both a cash flow and an equity dilution perspective, and we await further developments,” Citi Research reckons.

Vi has around INR2.15 lakh crore in government obligations. The government, however, has the option to convert some dues into equity, a decision that will be taken later. The government currently holds around 32% stake in Vi, which is likely to come down to 24% post the FPO.

“Even if we assume a 20% step change in tariff followed by a 10% per annum tariff compounding and no subscriber erosion, we estimate it would take Vi well over 20 years to organically pay back government obligations,” Macquarie said. It added that in the absence of government write-offs, this constrained cash flow and potential dilution dynamic remains a fundamental challenge.