Nuvama Institutional Equities said Vodafone Idea Ltd (VIL) today is definitely in a better position than it was six months ago, but a lot needs to fall into place for the telecom operator to become an 'investible' idea. "DoT (Department of Telecom) waiver of bank guarantee requirements is a positive development, but a lot needs to fall into place, for VIL to become an investible idea for us. Investor focus shall now shift to VIL's progress on key operational parameters—pace of subscriber loss, future tariff hike(s) and capex velocity–even as further developments on AGR (adjusted gross revenue) dues shall also be keenly watched; maintain 'Hold'," the domestic brokerage stated.
"Revenue grew 1.7 per cent QoQ/4.2 per cent YoY to Rs 11,120 crore, slightly below Street's estimate of Rs 11,350 crore. ARPU grew 4.5 per cent QoQ/12.4 per cent YoY to Rs 163, led by the residual impact of tariff hike. VIL lost 5.2 million subscribers (versus 5.1 million in Q2 FY25). 4G subscriber base rose 0.1 million QoQ to 126 million. Elevated subscriber loss was due to dual SIM consolidation and market share loss to BSNL. VIL is also losing customers on account of customers upgrading to 4G/5G mobile handsets and weak network coverage in outskirt areas. Blended churn for the quarter was 4.5 per cent (same as in Q2 FY25). EBITDA margin expanded 77 bps QoQ to 42.4 per cent due to lower employee cost and tariff hike impact. Adjusted loss for the quarter was Rs 6,610 crore (versus a loss of Rs 7.18 crore QoQ)," the broking firm also said.
"Capex for Q3 FY25 jumped to Rs 3,210 crore (versus Rs 1,360 crore in Q2 FY25). Management guided for overall capex spending to be around Rs 10,000 crore for FY25. It indicated that the majority impact of tariff hikes was realised in Q2 FY25/Q3 FY25. Net debt (excluding FLO) rose marginally to Rs 2.17 lakh crore (versus Rs 2.16 lakh crore in Q2 FY25). While management continues to highlight that any waiver of AGR dues was not part of its business plan–the debt raise is likely to be delayed due to the SC verdict. Management also outlined the timeline for the commercial launch of 5G services," Nuvama further stated.
It underscored that the telecom operator's 5G rollout is expected to be slower as a weak balance sheet further impairs its ability to invest in the network adding that it needs material tariff hike and capital raise to tide over the challenges.
Nuvama sees a significant fund raise, massive network investments, acquisition by a new player and waiver of spectrum debt or AGR liabilities by the government as key risks to the above views.
The brokerage has upwardly revised its target price for VIL's stock to Rs 8.5 from Rs 7 earlier. However, the suggested price is lower than Thursday's closing value of Rs 8.65.
Technically, the counter traded lower than the 5-day, 10-, 20-, 30-, 150-day and 200-day simple moving averages (SMAs) but higher than the 50-day and 100-day SMAs. Its 14-day relative strength index (RSI) came at 46.45. A level below 30 is defined as oversold while a value above 70 is considered overbought.
"The counter seems to have a support base in the Rs 8.20-7.80 subzone. In contrast, the subsequent potential resistance is seen around the Rs 9.8-10 range," said Osho Krishan, Senior Research Analyst - Technical & Derivatives at Angel One.
VIL is currently involved in the process of rolling out its 5G services in select areas. The company was formed in 2018 when Vodafone Group Plc merged its India business with Idea Cellular. Promoters held a 38.80 per cent stake in the telco as of January 9, 2025, a 1.48 per cent uptick from 37.32 per cent on December 31, 2024.