Vi’s ₹40,000 Crore Cash Flow Boost. Bailed Out But Barely Breathing; Can Vodafone Idea Truly Revive?

Vodafone Idea, Vi just got a lifeline, again. The government has stepped in, converting ₹36,950 crore of the telco’s spectrum dues into equity, effectively handing Vi a massive ₹40,000 crore cash flow relief over the next three years. This move was much-needed for the cash-strapped telco, which has been on financial life support for years.

But, does this really set Vi up for a revival, or is it just delaying the inevitable?

The immediate impact looks promising, Vi’s stock surged 10% in early trade, hitting the upper circuit limit at ₹7.49 on the BSE. Market analysts predict a potential 30-35% upside, pushing the stock to ₹10, the same price at which the government converted its dues into equity. Sentiments are high, especially with Vi’s ongoing 5G rollout in select cities.

However, let’s not get ahead of ourselves. The company’s troubles run deep; for years, Vi has been trailing behind Reliance Jio and Bharti Airtel, struggling with subscriber losses and an ever-mounting debt pile. And while this government-backed intervention will ease statutory liabilities, it’s just one piece of the puzzle.

Investors are cautiously optimistic. Citi Research called it a “timely show of support” that could finally get banks on board to lend Vi the ₹25,000 crore it desperately needs. This debt raise is crucial to fund its planned ₹50,000-₹55,000 crore capex over the next three years; money that will go into expanding 4G operations and strengthening its 5G network.

However, there is a huge elephant in the room!

Vi’s massive debt burden; even after this conversion, the telco’s total debt stands at a whopping ₹2.12 lakh crore. The government’s stake has now doubled to nearly 49%, making it the largest shareholder, while Vodafone UK and Aditya Birla Group’s holdings have shrunk.

The numbers might look encouraging at first glance, but the celebrations might not be totally just. 

US brokerage estimates suggest that Vi’s spectrum dues, which were originally pegged at ₹11,000 crore, ₹25,000 crore, and ₹25,000 crore for FY26, FY27, and FY28 – could shrink significantly to just ₹500 crore, ₹5,000 crore, and ₹15,000 crore, respectively. That translates to over ₹40,000 crore of cash flow relief over the next three years.

Hence, a breather? Yes. A game-changer? Not quite.

Analysts aren’t convinced that this lifeline alone will be enough. The real storm is still ahead – tariffs.

JM Financial points out that for Vi to survive in the long term, it needs to significantly increase its average revenue per user (ARPU).

The magic number is ₹380 by FY28 – more than double the current ₹163 (as of Q3 FY25). That’s a steep climb, requiring multiple rounds of aggressive tariff hikes; without that, Vi will struggle to meet its enormous ₹43,000 crore payment obligations between FY28 and FY31.

The company’s capex game also needs a drastic boost. JM Financial estimates Vi must pump ₹10,000-₹15,000 crore per year (about 15-20% of its revenue) just to stay competitive and prevent further subscriber erosion.

Hence, even with this latest relief package, Vi’s financial health remains fragile. Citi Research notes that the telco is still on the hook for annual spectrum payments of ₹2,200 crore for post-2021 purchases, plus AGR dues of ₹16,500 crore. Meanwhile, Vi’s cash reserves at the end of December stood at just ₹12,090 crore, a drop in the ocean compared to its upcoming obligations.

Vi A Government Company?

Vodafone Idea has been in doldrums for a many years now, and even with the latest government bailout, it might be the only major company where equity capital is double its revenue.

Let that sink in – with Vi set to issue 36.95 billion shares to the government in exchange for converting dues into equity, the state will own nearly 49% of the company.

That raises the inevitable debate – does this make Vodafone Idea a government company? But more importantly, should equity investors still have any hope left?

Valuations depend on earnings per share (EPS), and here’s where things get grim. Even if Vi miraculously starts turning a profit, just to hit Re. 1 in EPS, it would need at least ₹10,000 crore in net profit. For comparison, Bharti Airtel reported a net profit of ₹4,976 crore last fiscal year, with an EPS of ₹8.74.

The harsh truth is that Vi hasn’t suffered a sudden heart attack; it has been in a financial coma for years.

The reasons are many – an inability to withstand cutthroat competition, shareholder reluctance to pump in fresh capital, and a government that took its sweet time tweaking policies to keep the telco alive.

The latest bailout ensures Vi survives longer than many expected (good news for employees and loyal customers) but is it really the best possible outcome?

The Road Not Taken – Bankruptcy, Better?

Vi’s liabilities are massive, standing at ₹2.12 lakh crore, most of which is owed to the government and unlike traditional tax dues, these stem from spectrum charges and revenue-sharing obligations. History shows that the government isn’t a stranger to telecom bailouts – in the late ‘90s, it moved from a fixed license fee model to revenue-sharing because telcos were struggling to survive. Many still didn’t make it, but at least the intervention was swift.

So why did the government hesitate this time?

Perhaps it was easier to restructure an entire industry rather than bail out a single company. A Vi-specific rescue package could have triggered legal disputes and accusations of favoritism but delaying intervention came at a steep cost.

At this point, was there a better way out?

One of India’s most significant business reforms – the Insolvency and Bankruptcy Code (IBC) – exists for cases like this. It’s designed to wipe out existing shareholders who mismanaged a company while giving creditors a shot at recovering dues. More importantly, it paves the way for fresh investors to step in and rebuild the business, rather than letting it limp along indefinitely.

Would Vi have been better off filing for bankruptcy? Probably, yes.

Vi is stuck in a twilight zone, not dead, but far from healthy.

What Should Vi Have Done? And Is This Lifeline Enough?

1. A Realistic Capital Infusion, And Sooner

Vi has been in survival mode for years, yet its promoters – Vodafone UK and Aditya Birla Group – dragged their feet when it came to fresh capital infusion. Instead of waiting for a government rescue, they should have proactively raised significant equity much earlier, before the situation became desperate.

Contrast this with Bharti Airtel, which raised billions through a rights issue and investments from big players like Google. That allowed Airtel to expand and invest in 5G. Vi, on the other hand, kept kicking the can down the road.

2. Strategic Cost Cutting & Operational Efficiency

Vi continued to operate inefficiently in a highly competitive market. While Airtel and Jio were aggressively scaling their networks, Vi struggled with network congestion and customer churn. The company needed an urgent restructuring – closing unprofitable operations, optimizing its spectrum assets, and streamlining costs. Instead, it remained in damage control mode.

3. Tariff Hikes at the Right Time

All telecom players needed tariff hikes, but Vi needed them the most. However, it hesitated, fearing further subscriber losses to Jio and Airtel. Had it taken decisive action, like Airtel did, it could have improved its Average Revenue Per User (ARPU) sooner. Now, even with government help, analysts say Vi’s survival hinges on multiple tariff hikes, bringing ARPU above ₹380 by FY28. The question is will customers stick around for that long?

4. Explore Mergers or Selling Stake to a Tech Giant

Vi could have explored a merger with a financially stronger player or a strategic stake sale to a deep-pocketed tech giant like Amazon or Google. Reliance Jio did this successfully, raising billions from Facebook and global investors. Vi, however, failed to attract serious interest, likely due to its fragile balance sheet.

Will This Lifeline Be Enough?

The government’s equity conversion reduces Vi’s near-term cash burden by ₹40,000 crore over the next three years, but let’s not kid ourselves – this is just a temporary fix.

Here’s why –

Debt & Dues – Even after this relief, Vi’s total net debt remains at ₹2.12 lakh crore. It still owes ₹16,500 crore annually in AGR payments and ₹2,200 crore annually in spectrum dues for post-2021 auctions. The math doesn’t look good.

Funding & Expansion Are Still a Big Question – Vi plans to raise ₹25,000 crore from banks, but lenders have been hesitant. Even if it manages to raise funds, will it be enough to compete with Jio and Airtel, who are already years ahead in 5G and network expansion?

Subscriber Exodus Continues – Vi has been consistently losing customers to Airtel and Jio. A bailout doesn’t magically fix poor network quality. It needs ₹50,000 crore in capex over the next three years just to stay relevant. Where will that money come from?

Tariff Hikes Could Backfire – If Vi raises tariffs aggressively to improve revenue, subscribers could defect to competitors with stronger networks. It’s a tricky balancing act.

The Last Bit, Survival or Slow Death?

The latest relief package buys Vi time, but it doesn’t guarantee survival.

The company still needs massive capital infusion, aggressive expansion, and multiple tariff hikes to stand a fighting chance, otherwise, this bailout may just be prolonging the inevitable – a slow, painful decline.