Vodafone Idea: Telecom operator in better position than before; should you buy stock?

Vodafone Idea Ltd (VIL) Q4 results slightly missed analyst estimates. Anlaysts said the telecom operator is in a better position than it was pre-FPO and is treading a clear path to survival, which was completely missing before. But a lot needs to fall into place, for it to become an investible idea, they said, adding that VIL needs to urgently incur capex for 5G rollout and to upgrade the 4G network and expand its coverage. The infrastructure upgradation will have a gestation period of six–eight quarters, they said while suggesting 'Neutral' or 'Hold' rating on the stock with target prices in the Rs 14-15 range.

Vodafone Idea shares settled at Rs 13.33 on Friday, up 1.37 per cent. The targets suggests up to 13 per cent upside potential.

VIL is gearing up to meet clear skies ahead, said Nomura India as it upgraded the stock to 'Neutral' with revised target price of Rs 15

"A long journey remains to be traversed, but the tempest has largely passed and VIL is gearing up to meet clear skies ahead. We upgrade the stock to Neutral (from Reduce) with a revised target price of Rs 15 (from Rs 6.50); we roll forward our valuation to Mar-26F with an EV/Ebitda multiple of 15 times," it said.

Nuvama said VIL needs three events to play out to survive – capital infusion, liabilities waiver and tariff hikes. With the capital raise, it has achieved one and enabled another, it said.

"We believe VIL is on its way to a ‘going-concern’ now – though still not completely out of the woods. We are tweaking FY25E/26E estimates down by 2 per cent. We continue to value the stock at 11 times FY26E EV/Ebitda, yielding an unchanged target price of Rs 14," Nuvama said.

The telecom operator is witnessing a gradual slowdown in subscriber loss now, indicating the consolidation of dual sim cards, being largely behind. The customer loss has been on account of customers upgrading to 4G/5G mobile handsets and weak network coverage in outskirt areas, anlaysts said.

"Limited network investments slowed customer experience, resulting in subscriber churn. Improvement in network investments may take 2-3 years. With this, the company expects to restrict the subscriber churn and grow its data subscriber base," said Motilal Oswal Securities.

Vodafone Idea expects to invest Rs 500-550 crore over the next three years in 4G coverage expansion, 5G launch and capacity expansion, which hold significant importance. It still holds a debt of Rs 2.1 lakh crore with an annual installment of Rs 43,000 from FY26 onward. 

"This looks challenging against FY24 annualized Ebitda (IND-AS 116) of Rs 84,000 crore. 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 increase. We expect the conversion into equity of unpaid installment post moratorium to start by FY26/FY27," Motilal Oswal said.

This brokerage has incorporated a tariff hike in its estimates, building ARPU growth of 16 per cent and revenue/Ebitda CAGR of 18 per cent/27 per cent over FY24-26. 

"Assuming 14 times EV/Ebitda, coupled with a net debt of Rs 2.1 lakh crore, derives target price of Rs 15. The reduction in AGR liability, restriction in subscriber churn, and a potential tariff hike could remain key catalysts for the stock. We reiterate our Neutral rating on the stock," it said.