Vodafone Idea Falls 14%: Why Investors are Worried About Vodafone Idea's Future

Vodafone Idea shares crashed over 14 per cent on Friday morning after foreign brokerage firm Goldman Sachs forecasted an 83 per cent downside in the stock price. The brokerage has given a target price of just Rs 2.5 and maintained its ‘Sell’ rating on the stock.

The company faces difficulties achieving free cash flow breakeven and recovering market share. The recent capital raise is unlikely to be adequate to stop the company’s market share erosion, according to the Goldman report.

At 11:30 AM on Friday, the stock was trading 1.68 points or 11.13 per cent down at Rs 13.41.

The brokerage firm predicts an additional 300 basis points decline in market share over the next 3-4 years. In addition, the telecom company has significant adjusted gross revenue (AGR) and spectrum-related payments, which are expected to begin in FY26.

According to estimates of Department of Telecommunication's (DoT) order seeking AGR and other non-revenue related dues, Vodafone Idea owed Rs 58,254 crore, compared to the company’s assessment of Rs 21,533 crore.

Currently, Vodafone Idea is the third-largest telecom operator in the country with a 17 per cent revenue market share. The company has lost around 500 bps of revenue market share over the past three years. It has consistently underperformed its competitors Reliance Jio and Bharti Airtel.

On a year-to-date basis, the telecom stock has plunged over 21 per cent and currently trading 32 per cent down from its 52-week high.

According to the report, to achieve sustainable free cash flow neutrality, average revenue per user (ARPU) would need to increase by Rs 200-270 compared to the December 2024 levels. It is expected that free cash flow will remain negative at least until FY31.

The company’s ARPU stood at Rs 146 in the April-June quarter of FY25.

In the June quarter, Vodafone Idea recorded a revenue from operations of Rs 10,508 crore compared to Rs 10,655.5 crore in the year-ago period. However, the net loss narrowed to Rs 6,432 crore in the first quarter compared to Rs 7,840 crore in the year-ago period.

The company has been consistently reporting losses from the past five financial years.

However, Citi has maintained a ‘Buy’ rating on Vodafone Idea, with a target price of Rs 22 per share. The brokerage had anticipated that the Supreme Court would agree to hear Vodafone Idea's AGR Curative petition, noting that a favorable decision could substantially lower the company's AGR debt burden.

"We view this as a material development as the matter has been long pending and its been uncertain whether the Supreme Court would be willing to hear Vodafone Idea's petition," the brokerage noted.

The brokerage firm’s current base case price target of Rs 22 per share does not factor in any reduction in the company’s AGR dues. Citi had called Vodafone Idea a "high risk, high returns" stock.

Shares of Indus Towers, the telecom infrastructure company, fell over 2 per cent in early trade after Goldman took a more cautious stance. The brokerage has changed its rating on the stock from 'Neutral' to 'Sell,' but has raised the target price from Rs 220 to Rs 350.

Goldman noted that there is a disconnect between the company’s fundamentals and its current valuations while adding that the recent re-rating of Indus Towers is overdone. The brokerage says it sees limited visibility on medium and long-term growth prospects.

Currently, the stock is trading at Rs 420.25, down 5 per cent from its Thursday’s closing price. However, it is still 20 per cent above Goldman’s closing price. In the past six months, Indus Towers stock has surged over 66 per cent.

On the other hand, Goldman Sachs raised its target price for Bharti Airtel to Rs 1,700 from the previous Rs 900, signaling an upside of 10 per cent from the stock’s current market price. The brokerage has maintained its ‘Buy’ rating while adding that strong growth and a turning point in free cash flow (FCF) and returns profile warrant the stock’s premium valuation.