Vodafone Idea shares: Goldman Sachs' 83% downside target drags stock below Rs 13 level

Shares of Vodafone Idea Ltd came under pressure in Friday's trade after global brokerage Goldman Sachs suggested a target of Rs 2.50 per share on the telecom stock, hinting at a potential 83 per cent downside ahead. To be sure, Goldman Sachs had a target on Rs 2.20 per share on the stock earlier and the fresh target is an upside revision. In a blue-sky scenario, where it assumed 65 per cent lower AGR dues, consistent tariff increases and no near-term government repayments, Goldman Sachs sees an implied value per share of Rs19 for Vodafone Idea, implying 26 per cent upside.

That said, Goldman Sachs' base target has been lowest among all recent analyst recommendations. Last week, another foreign brokerage Citi maintained its 'Buy' rating on Vodafone Idea Ltd with a target price of Rs 22. 

Vodafone shares Idea fell 14.44 per cent to hit a low of Rs 12.91 on BSE. The scrip is down 20 per cent year-to-date.

Goldman Sachs said the recent capital raise, while incrementally positive, is unlikely to be adequate to stop the company's market share erosion. Peers are spending at least 50 per cent higher capex that Vodafone Idea, Goldman Sachs said adding that its analysis suggested a direct correlation between capex and revenue market share. The brokerage sees another 300 basis points share loss for Vodafone Idea over the next 3-4 years.

"Additionally, Vodafone Idea has large AGR/spectrum related payments starting in FY26; while the government has the option of converting some dues into equity, we estimate ARPUs would have to rise by Rs 200-270 (120-150 per cent under different scenarios) vs Dec "24E levels for Vodafone Idea to be sustainably free cash flow neutral, a low probability in the medium term in our view," it said.

Excluding the impact from any such potential conversion, Goldman Sachs expects free cash flow (FCF) for Vodafone Idea to be negative at least until FY31. It expects Vodafone Idea's net-debt-to-Ebitda will remain elevated at 19 times by March 2025. 

"We continue to expect its balance sheet to remain stretched even after potential government conversion of near-term dues into equity. Additionally, Vodafone ldea trades at 24 times FY26E EV/Ebitda, a sharp premium vs Bharti's India business at 12 times despite its weaker growth and returns profile; we forecast mid-single digit CROCI for Vodafone Idea during our forecast period vs 17-18 per cent for Bharti/Jio," Goldman Sachs said.

The brokerage maintained its Sell call on the stock. 

Earlier, Citi said its target price of Rs 22 does not factor in any reduction in the company's AGR dues. A favourable outcome could significantly reduce the telecom operator's AGR debt burden, Citi reportedly said. Potential benefits are estimated at Rs 4-5 per share or even higher -- over 25 per cent benefit to the prevailing stock price, it said.