Nuvama, recently which doubled its share price target on Vodafone Idea Ltd, met with the management of telecom operator. It said the Vodafone Idea management appeared upbeat about the growth prospects following the recent successful follow-on public offer (FPO) and spoke, at length, about how the company got into the stretched financial situation, over the last decade, and how the current FPO and other steps are likely to turn around the business.
The domestic brokerage said Vodafone Idea needs three events to play out to survive – capital infusion, liabilities waiver and tariff hikes. With the recent capital raise, the telecom operator has achieved one and enabled another.
“We believe VIL is on its way to a ‘going-concern’ now – although still not completely out of the woods. We maintain estimates and reiterate ‘HOLD’, with an unchanged target price of Rs 14, valuing it at 11 times FY26 EV /Ebitda,” Nuvama said.
Vodafone Idea, Nuvama said, expects the upgrade capex to be similar to what peers like Bharti Airtel Ltd have done over the last three years. It also highlighted that the capex would enable it to provide seamless services to subscribers, where they did not have service before – and improve the quality, where the service was inferior to its competitors.
The Vodafone Idea management views tariff hikes as a necessity for the industry, with all players making insignificant RoCEs.
“It expects all three players to take part in tariff hikes – whenever it happens – just like they did in earlier rounds (akin to Dec-19, Dec-21). Along with that, VIL expects to increase its ARPU further by continuously upgrading its subscribers from 2G to 4G – which still form a sizeable part of its subscriber base (42 per cent versus 28 per cent for Bharti),” Nuvama said.
Nuvama said Vodafone Idea is hopeful of some relief from the Supreme Court, on the AGR front, given the contention is on the calculation methodology and some errors by DoT in calculating the liability.
“As the moratorium period provided by the GoI ends in Sep25, VIL shall need to make payments of Rs 29,000 crore/Rs 43,000 crore in Mar-26/Mar-27. The management is hopeful of addressing the same via internal accruals or part conversion to equity for GoI,” Nuvama said.
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