Vodafone Idea Ltd (VIL) reported a narrowing of losses in the June quarter, with its average revenue per user (ARPU) seeing an improvement, led by the shift to 4G, higher data monetisation, and an increase in minimum recharge vouchers. While revenue fell marginally, subscriber churn stayed elevated in the June quarter, following which a couple of brokerages retained their 'Neutral' or 'Hold' rating on the stock. They suggested price targets in the Rs 15-16.50 range. Vodafone Idea shares settled at Rs 15.48 on Tuesday.
Nomura India suggested a 'Neutral' rating on the VIL stock with a target price of Rs 15. It said the outlook for VIL remains constructive due to likely improvement in operating metrics underpinned by its ongoing network investments and 5G rollout and all three private players aligned on the need for further significant ARPU repair.
"If VIL is able to materially arrest the decline in its subscriber base in the coming quarters and revert to growth, it will materially further improve the outlook for the stock and drive earnings upgrades," Nomura India said.
VIL today is definitely in a better position than it was six months ago – now treading a clear path to survival, which was completely missing before, said Nuvama Institutional Equities.
"However, a lot needs to fall into place, for it to become an investible idea for us. We would be keenly watching out for key events – pace of subscriber loss, tariff hike impact, capex velocity and developments on AGR/spectrum dues; maintain ‘HOLD’," it said.
Limited network investments had slowed the customer experience, resulting in subscriber churn, said MOFSL which believes an improvement in network investment may take 2-3 years.
Vodafone Idea expects to invest Rs 50,000-55,000 crore over the next three years toward expanding 4G coverage, 5G launch, capacity expansion, which holds significant importance. But it still holds a debt of Rs 2 lakh crore with an annual installment of Rs 43,000 crore from FY26 onwards.
"This looks challenging against the 1QFY25 annualized Ebitda (IND-AS 116) of Rs 80,000 crore. The significant amount of cash required to service debt leaves limited upside opportunities for equity holders, despite the high operating leverage opportunity from any source of ARPU improvement. We expect the conversion into equity of unpaid installments post-moratorium to start by FY26/27," MOFSL said.
Nuvama said all eyes are now on how the recent tariff hikes revive the sector. While Vodafone Idea is on its way to becoming a ‘going concern’, it is still not completely out of the woods.
"We are marginally tweaking FY25E/26 Ebitda (less than 2 per cent) and rolling forward our valuation to 11 times Sep-26 EV/Ebitda (earlier 11.5 times). Maintain ‘HOLD’ with an unchanged target price of Rs 16.50," Nuvama said.
MOFSL said it is factoring in revenue CAGR of 11 per cent and Ebitda CAGR of 31 per cent over FY24-26E. Assuming 15 times EV/Ebitda, coupled with net debt, it derived a target price of Rs 15.
A reduction in AGR liability and restriction in subscriber churn rate could remain the key catalysts for the stock, it said while reiterating its 'Neutral' rating on the stock.
JM Financial said VIL's long-term sustainability continues to be contingent on significant favourable government support. In our bull case scenario, VIL's fair value could jump to Rs 20 per share assuming a sharper tariff hikes driving ARPU to Rs 200 by FY26 and Rs 300 by FY30, the brokerage said. This is against Rs 195 base case ARPU estimate for FY26 and Rs 265 forFY30,
In its bull case, JM also assumes subscriber base of 21.3 crore, driven by planned capex of Rs 50,000 crore over FY25-FY27 and AGR relief of Rs 35,000 crore from the Supreme Court. Besides, it assumed an extension of moratorium beyond FY26 and/or partial equity conversion of government of India dues depending upon VIL’s evolving liquidity position.
For now, this brokerage has suggested a 'Sell' call with a target of Rs 10 on Vodafone Idea.