Vodafone Idea shares: ICICI Securities cuts target price, says this

Post an analyst call hosted by the Vodafone Idea management, ICICI Securities said the telecom operator is hopeful of a resolution of the arithmetical error in the AGR dues calculation and is engaging with the government on the subject. This is despite the Supreme Court rejecting the curative petition for AGR dues.  

Vodafone Idea Ltd, as per ICICI Securities, said its case has strong merit, and dialogue with the government is and has been encouraging. It is factoring in Rs 29,000 crore of government debt – to be converted into equity at the end of the moratorium period, as per the reform package.

Vodafone Idea has not factored an AGR resolution into its business plan and, therefore, rejection of the curative petition does not derail its recovery efforts, ICICI Securities said. 

Following this, ICICI Securities has pushed its estimate on AGR relief of Rs 35,000 crore from FY25 to FY26, and capex acceleration to FY26. This has led to a change in its net profit estimate for the period of FY25–27E even as its Ebitda for Vodafone Idea for the comparible period unchanged. 

Considering the risk of AGR resolution rising, it cut its EV/Ebitda multiple to 13 times FY27 from 14 times and target price to Rs 11 from Rs 15. The brokerage maintained a 'Hold' on the stock. MOFSL has a target of Rs 12 and a rating of 'Neutral' on the stock. 

"VIL is nearing closure of debt funding of Rs 25,000 crore; another Rs 10,000 crore for non-fund facilities that should help boost capex. VIL also signed deals with major equipment suppliers for Rs 30,000 crore, for radios to be supplied over the next three years; it expects capex to kick start from November 2024. VIL also envisages another tariff hike of 15–20 per cent in 15 months," ICICI Securities said. 

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. The brokerage said 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.