Vodafone Idea Stock Trades Flat As Hope Hinges On Post-Election Tariff Hike, Analysts Mixed

Vodafone Idea shares were trading flat on Friday after the telecom operator’s disappointing fourth-quarter results.

What Happened: The company's net loss deepened to ₹7,674 crore for the period ended March 2024, wider than the ₹6,418.9 crore it lost a year earlier.

However, revenue from operations edged up slightly to ₹10,606 crore from ₹10,531 crore in the same quarter last year. The average revenue per user (ARPU) rose to ₹146 from ₹135, thanks to adjustments in entry-level plans and subscriber upgrades.

Vodafone Idea also reported its highest post-merger quarterly EBITDA at ₹2,180 crore, up 5.4% year on year. The EBITDA margin saw a modest increase, reaching 40.9% from last year’s 40%.

This marks the first earnings report since Vodafone Idea secured ₹18,000 crore through India’s largest follow-on public offering. The company is now in talks with a bank consortium to raise an additional ₹25,000 crore in debt and up to ₹10,000 crore in non-fund-based facilities.

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Vodafone Idea plans to use these funds for significant capital expenditures, estimated between ₹50,000 crore and ₹55,000 crore over the next three years. This investment will focus on expanding 4G coverage in 17 priority circles, launching 5G in key areas, and boosting capacity to meet growing data demand.

Analyst View: Kotak Institutional Equities described Vodafone Idea as a high-risk, high-reward investment, noting the need for more government relief, reduced competition and better execution to prevent further subscriber losses. Kotak forecasts a 20% tariff hike in June 2024 post-elections and a 15% hike in December 2025.

The brokerage has reinstated a “sell” rating with a target price of ₹10, with potential outcomes ranging from ₹7 (bear case) to ₹23 (bull case).

However, Citi offered a bullish perspective. After an 85% rise in the stock in the past year, Citi sees a 90% potential upside, setting a target price of ₹25 in their best-case scenario. This outlook is based on expected 20% tariff hikes, increased subscriber numbers, a 50% reduction in adjusted gross revenue debt, and an estimated FY28 net debt/EBITDA ratio of 5x.

Price Action: Vodafone Idea’s share price was trading flat at ₹13.15 near the start of trade on Friday.

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