Vodafone Idea: Govt support can materially ease VIL’s funding gap; Nomura India shares maths

Nomura India, which has maintained its target price of Rs 15 on Vodafone Idea Ltd (VIL) following a 20 per cent crash on the counter, said the worst is behind for the telecom operator and that government support can materially ease VIL’s funding gap.

Nomura India is factoring in Rs 22,400 crore Ebitda for VIL in FY26 and said the operator's Ebitda generation will partly be used to meet government dues that stand at Rs 29,000 crore. But, as indicated by VIL in the past, it is likely to use the option to convert government dues into equity. To this end, Vodafone Idea will be able to convert Rs 12,000 crore of dues into equity and will be able to manage to repay the remaining of Rs 17,000 crore through its Ebitda generation.

In FY27, VIL will generate Rs 26,100 crore of Ebitda, Nomura India estimated. Payments to the government will increase sharply to Rs 43,000 crore. Out of this, VIL will be able to convert Rs 17,000 crore of dues to equity and pay the remaining Rs 26,000 crore through its Ebitda.

"We factor a capex run rate of Rs 20,000 crore in each year of FY26F-27F, which VIL will partly meet through its concluded equity raise and incremental capital raises, as necessary," Nomura India said.

Nomura India said the worst is now behind for Vodafone Idea following the conclusion of the overhang, and the sharp
decline in recent weeks offers an opportunity to buy the stock. This brokerage suggested a 'Buy' on the stock against 'Neutral' earlier, with an unchanged target price of Rs 15.

It said note that the AGR outcome was a material overhang on VIL, and following the conclusion of this overhang, there is now incremental visibility on the way forward for VIL.

"Despite its large debt burden (but manageable with government support) in the coming years, VIL will be able to steadily repair and rebuild its business and partake in the robust outlook for the Indian telecom industry — which is underpinned by clarity on significant tariff hikes for the next two years and 5G monetization," Nomura India said.

The foreign brokerage retained its estimates, which factor in a 12 per cent hike in ARPU hike and a slowing subscriber loss trend for VIL over FY25-26 and a modest recovery in FY27, which it believes have upside risks. The brokerage expects VIL's Ebitda to record a 15 per cent CAGR over FY24-FY27.