Odafone-Idea Share: Vodafone Idea share price fell by 14 percent on Friday. The previous day's closing was Rs. The share price fell to a low of Rs 12.91 as against 15.09. The global brokerage firm is trading at Rs. 2.5 set a target price, which triggered a selloff in the telecom service provider's stock. According to Goldman Sachs, the telecom company's recent capital raising is a positive step but not enough to prevent ongoing market share erosion. Vodafone Idea's recent follow-on public offering, through a combo of capital infusions from promoters, raised equity of Rs. 20,100 crores collected. In addition another Rs. The company plans to raise a debt of Rs 25,000 crore. “Our analysis indicates a direct relationship between Capex and revenue market share. “Based on our estimate that peers will spend at least 50 per cent more on capex compared to Vodafone-Idea, we expect the company to lose another 300 basis points of market share over the next 3-4 years,” the report said. India's third largest telecom operator, Vodafone-Idea, faces significant AGR (adjusted gross revenue) and spectrum related payments from FY26 onwards. Even with the government's option to convert some of these dues into equity, Goldman Sachs estimates that Vodafone-Idea's net debt-to-EBITDA ratio will be 19 times higher by March 2025, even with the recent capital increase and tariff hike.
Despite potential government equity swaps, the company's balance sheet is expected to remain stretched. The brokerage firm also expects average revenue per user (ARPU) to increase. 200-270 (120 per cent-150 per cent under various circumstances) by December 2024. Despite these necessary increases, the company expects Vodafone Idea's net debt-EBITA ratio to increase to 19 times the company's combined earnings by March, 2025. Even if the government converts some near-term debt into equity, the balance sheet will come under pressure.
'In this scenario, as Vodafone-Idea indicated during the fourth quarter FY24 earnings call, the spectrum, AGR dues due in FY26, FY27 will be converted into equity by the Government of India. We estimate Vodafone-Idea's total AGR and spectrum dues to be around USD 8.2 billion during this two-year period (excluding minimum payments). This is more than the company's potential gross cash flow, which also assumes zero capital expenditure.
Goldman Sachs maintains a sell rating on Vodafone-Idea, with a 12-month discounted cash flow (DCF)-based target price of Rs. 2.2 to Rs. Revised to 2.5. This represents an 83 percent reduction compared to a median disadvantage of coverage of 5 percent.
In a more optimistic scenario, with around 65 per cent lower AGR arrears, stable tariff hikes, no near-term government repayments (upside risks), an implied value per share of Rs. 19, which represents a 26 percent increase over current levels. Compared to an estimated 83 percent disadvantage in the base case.
