Shares of Vodafone Idea Ltd (VIL) are in focus on Tuesday morning after the telecom operator conducted an investor call to discuss key developments. The telecom operator is expecting the subscriber churn to reduce from the March quarter onwards, since the capex rollout is expected to commence from the December quarter. It expects debt fundraising of Rs 35,000 crore to conclude in 7-8 weeks and sees about 20 per cent tariff hike next year.
Tariff hike MOFSL, which attended the meet said, the management expects another tariff hike of 20 per cent -- a similar quantum of rate hike that was seen in July, between Q2FY26 and Q3FY26. The Vodafone Idea management sees the equity conversion to commence once the moratorium ends.
"The company has finalised a deal valued at Rs 30,000 crore with Nokia, Ericsson, and Samsung to supply network equipment. The delivery of the radio equipment is expected to begin in the second half of the upcoming quarter (November/December 2024), followed by the deployment. Its radio equipment capex is critical and a substantial part of the capex rollout, which includes expanding 4G coverage and launching 5G. This is part of a three-year capex plan worth Rs 50,000-55,000 crore, where the remaining Rs 20,000-25,000 crore will be allocated to core and fiber," MOFSL said.
Capex The domestic brokerage expects the long pending capex rollout to commence from the December quarter onwards and the subscriber metrics to improve from the March quarter onwards. In order to increase 4G coverage, the company is planning to add 2,15,000-2,20,000 sites, up from the existing total of 1,70,000 sites.
Vodafone Idea is in advanced stages of discussions to secure loans worth Rs 35,000 crore and State Bank of India (SBI) has received an evaluation report, allowing banks to proceed with internal processes. Funding is expected to conclude in 7-8 weeks.
Supreme Court setback On SC AGR setback, while the dismissal of the curative petition was the final outcome of the court, Vodafone Idea is engaging with senior government officials to consider remedies. It is in the process of putting together a comprehensive view of the calculation error and will engage with the government again in the coming days regarding those requests.
The management stated that the long-term business plan was developed without considering any potential benefits in the area of the matter, MOFSL said.
Vodafone Idea share price target
VIL has experienced a continued rise in ARPU, led by the shift to 4G, higher data monetisation, and an increase in minimum recharge vouchers. However, it has experienced an elevated subscriber churn during this period.
"Limited network investments have hindered the customer experience, resulting in subscriber churn. Over the next three years, the company expects to invest Rs 50,000-55,000 crore in expanding 4G coverage, launching 5G, and increasing capacity, all of which hold significant importance. However, 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 8,000 crore," MOFSL said.
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, it said adding that the conversion into equity of unpaid installments post-moratorium may start by FY26/FY27.
"We are factoring in a revenue/Ebitda CAGR of 11 per cent/31 per cent over FY24-26E. Assuming 14 times EV/Ebitda, coupled with net debt, we derive our target price of Rs 12. Restriction in the subscriber churn rate could remain a key catalyst for the stock. We reiterate our Neutral rating on the stock," MOFSL said.