Vodafone Idea’s share price plummeted by as much as 14 per cent on Friday after Goldman Sachs predicted a potential downside of over 80 per cent from the stock’s last closing level.
The share price fell to a low of Rs 12.91, down from the previous day’s close of Rs 15.09. The global brokerage firm set a target price of Rs 2.5 per share, triggering a sell-off in the telecom service provider’s stock.
According to Goldman Sachs, the telecom company’s recent capital raise is a positive step but insufficient to prevent ongoing market share erosion. Vodafone Idea recently raised Rs 20,100 crore in equity through a combination of a follow-on public offer and capital infusion from promoters. The company also plans to raise an additional Rs 25,000 crore in debt.
“Our analysis suggests a direct correlation between capex and revenue market share. Given our expectation that peers will spend at least 50 per cent more on capex compared to Vodafone Idea, we forecast a further 300 basis points loss in market share for the company over the next 3-4 years,” the report states.
India’s third-largest telecom operator, Vodafone Idea, is set to face significant AGR (adjusted gross revenue) and spectrum-related payments starting in FY26. Although the government has the option to convert some of these dues into equity, Goldman Sachs estimates that Vodafone Idea’s net debt-to-EBITDA ratio will remain high at 19 times by March 2025, even with the recent capital raise and tariff increase.
The company’s balance sheet is expected to remain stretched, despite potential government equity conversions.
The brokerage firm also projects that average revenue per user (ARPU) will need to increase by Rs. 200-270 (120 per cent-150 per cent under various scenarios) by December 2024. Despite these necessary increases, the firm forecasts that Vodafone Idea’s net debt-to-EBITDA ratio will stay elevated at 19 times by March 2025, with the company’s balance sheet likely remaining strained, even if the government converts some near-term dues into equity.
“This scenario assumes the conversion of spectrum and AGR dues payable in FY26 and FY27 into equity by the Government of India, as indicated by Vodafone Idea during its 4QFY24 earnings call. We estimate that Vodafone Idea’s total AGR and spectrum dues over this two-year period (excluding minimum payments) amount to approximately USD 8.2 billion, which is higher than the company’s potential gross cash, even assuming zero capital expenditure,” reads the report.
Goldman Sachs maintains a Sell rating on Vodafone Idea, revising its 12-month discounted cash flow (DCF)-based target price to Rs 2.5 from Rs 2.2, implying an 83 per cent downside compared to the coverage median downside of 5 per cent.
In a more optimistic scenario, assuming around 65 per cent lower AGR dues, consistent tariff increases, and no near-term government repayments (upside risks), the implied value per share could be Rs 19, suggesting a 26 per cent upside from current levels compared to the 83 per cent downside projected in the base case.
Top-notch SEBI registered research analyst
Best SEBI registered Intraday tips provider
Telegram | Facebook | Instagram
Call: +91 9624421555 / +91 9624461555
