Vodafone Idea share price tanks 14% to hit 3-month low: Check why

Goldman Sachs maintained its 'Sell' rating on the stock, as the brokerage firm said Vodafone Idea faces difficulties in achieving free cash flow break-even and recovering lost market share.

Shares of Vodafone Idea hit a three-month low of Rs 12.91, plunging 14 per cent on the BSE in Friday’s intra-day trade amid heavy volumes. The stock of the telecom services provider is trading at its lowest level since June 4, 2024.

In the past two months, the company's stock has slipped 24 per cent after the company reported a mixed performance for the quarter ended June 2024 (Q1FY25).

At 10:22 AM, Vodafone Idea was trading 12 per cent lower at Rs 13.28, as compared to the 0.95 per cent decline in the BSE Sensex. The average trading volumes on the counter jumped over two-fold. As many as a combined 962.9 million equity shares had changed hands on the NSE and BSE.

A sharp decline was witnessed in the telecom company's stock price today after Goldman Sachs maintained its 'Sell' rating on the stock with a target price of Rs 2.5 (earlier Rs 2.2), as the brokerage firm said that Vodafone Idea faces difficulties in achieving free cash flow break-even and recovering market share.

Vodafone Idea’s recent capital raise, while incrementally positive, is unlikely to be adequate to stop the company’s market share erosion. “Our analysis suggests a direct correlation between capex and revenue market share, and given our expectation of peers spending at least 50 per cent higher capex vs Vodafone Idea, we forecast another 300 bps share loss for the company over the next 3-4 years,” Goldman Sachs said.

Additionally, Vodafone Idea has large AGR/spectrum related payments starting in FY26; while the government has the option of converting some dues into equity, the brokerage firm estimate ARPUs would have to rise by Rs 200-270 (120 per cent-150 per cent under different scenarios) vs Dec ‘24E levels for Vodafone Idea to be sustainably free cash flow neutral, a low probability in the medium term. Excluding the impact from any such potential conversion, Goldman Sachs expect FCF to be negative at least until FY31.

Meanwhile, after the successful follow-on public offer (FPO) of the company, it is in discussions with banks for a debt fund raise of Rs 25,000 crore.

The company has planned a capex of Rs 50,000-55,000 crore over the next three years to strengthen its 4G network and launch 5G network across key sites.

It is expected that the customer churn should reduce significantly as a result of this planned capex program, according to analysts at Centrum Broking.

The brokerage firm expects that its planned capex program should help the company to improve its network capacity and reduce ongoing customer loss. Also, the recent tariff hike will help to drive revenue and earnings before interest, tax, depreciation and amortization (Ebitda) over the next two years.

Further, the brokerage firm, in its Q1FY25 result update, said, it maintains 'Sell' rating on the stock, with unchanged target price of Rs 11 per share, arrived through EV/Ebitda of 11.0x on FY26E estimates.

Vodafone Idea’s Q1FY25 print suggests that the company continues to underperform peers, pending acceleration in capex following the completion of fund raise, analysts at ICICI Securities said.

The company's planned capex over the next three years will focus on expanding coverage and decongesting its network. Vodafone Idea believes it can start growing again with a fair share of subscriber addition, as it plugs the 4G coverage gap and starts adding more data capacity through 4G/5G expansion.

The company expects 67–75 per cent tariff hike benefits to flow to revenue in the next few quarters, the brokerage firm said.