Geojit Financial Services has drastically cut its target price for Vodafone Idea Ltd (VIL) to ₹8.60, a significant reduction of 49% from its earlier target of ₹17 announced in August 2024. Despite the lowered projection, the revised target still suggests a 10% potential upside from the stock’s last closing price of ₹7.80 on Tuesday. The brokerage has maintained its ‘Hold’ rating, citing cautious optimism while emphasizing the company’s operational and financial challenges.
Vodafone Idea’s share price has shown mixed trends this year. Over the past month, the stock gained 8%, indicating some positive momentum. However, year-to-date, it has faced a substantial decline of 54%, reflecting broader challenges in the telecom sector and the company’s specific hurdles.
Key Factors Behind the Target Price Revision
The primary driver of Geojit’s reduced target price is the company’s limited progress in translating tariff hikes into meaningful revenue growth. While recent price increases have led to a modest improvement in Average Revenue Per User (ARPU), the overall revenue impact has been incremental. The brokerage expects the benefits of these tariff hikes to reflect more significantly in the next two quarters. However, this is tempered by the ongoing decline in Vodafone Idea’s subscriber base, which fell from 21.98 crore in Q2FY24 to 20.50 crore in Q2FY25.
Interestingly, the company reported a slight increase in its postpaid subscriber base, which grew to 2.45 crore from 2.31 crore over the same period. This segment has been supported by customized offerings targeting high-value customers, providing a glimmer of hope amidst broader subscriber losses.
Recent Performance
Vodafone Idea’s stock has experienced mixed performance:
- Past Month: An 8% rise in share price.
- Year-to-Date: A steep 54% decline.
Expansion Plans and Financial Strategy
Vodafone Idea’s growth strategy revolves around substantial capital expenditure and network expansion. The company has announced a ₹50,000–₹55,000 crore capex plan over the next three years, focusing on improving 4G population coverage in 17 priority circles. Additionally, it plans to roll out 5G services in key cities starting from Q4FY25, leveraging the 900 MHz band in 16 circles to enhance user experience and coverage.
To support these ambitious plans, Vodafone Idea has proposed a fundraising initiative. Last week, the company announced it would raise ₹1,980 crore by issuing fresh equity to its promoter, Vodafone Group Plc, on a preferential basis. This move follows Vodafone Group’s sale of its residual stake in Indus Towers, with the funds intended to clear a portion of Vodafone Idea’s outstanding dues to Indus Towers. While this fundraising offers short-term relief, the company’s debt situation remains a significant concern.
Broader Market Outlook
The telecom industry’s competitive dynamics and Vodafone Idea’s precarious financial position have led to divided opinions among market analysts. Last month, Nomura India retained a ‘Buy’ rating on the stock with a target price of ₹14, citing potential stabilization in subscriber losses and a return to modest growth by FY27. Nomura also highlighted an expected 14% annual Ebitda growth over FY24-27, driven by investments in network expansion.
However, Nomura cautioned that Vodafone Idea’s outlook is heavily reliant on its ability to secure additional funding. Without adequate capital to invest in its 4G and 5G networks, the company risks falling further behind its competitors, who are aggressively expanding their market presence.
Challenges Ahead
Despite its ambitious plans, Vodafone Idea continues to face significant operational and financial challenges. Its subscriber base is shrinking, and the modest growth in ARPU is insufficient to offset losses. The company’s heavy reliance on debt raises concerns about its ability to sustain long-term growth. While the recent fundraising efforts and tariff hikes provide some relief, they are unlikely to be a panacea for its structural issues.
Geojit’s revised price target reflects a cautious stance, balancing the potential upside from Vodafone Idea’s expansion plans against the considerable risks posed by its financial liabilities and declining subscriber base.
Conclusion
Vodafone Idea’s journey remains fraught with challenges, as the company strives to stabilize its operations and regain investor confidence. While the stock shows potential for a modest recovery, its performance hinges on successful execution of its expansion plans, sustained ARPU growth, and effective debt management. For investors, Vodafone Idea represents a risky bet, with its future heavily dependent on its ability to navigate a highly competitive telecom landscape and address its financial constraints.
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