Should you buy Vodafone Idea shares post Q2? Here's what brokerages say

Shares of crisis-hit Vodafone Idea (Vi) are in the spotlight on Monday, with the stock price hitting a fresh 52-week low of ₹7.27 on the domestic bourses today after the telecom company released its September quarter earnings report. At the current level, the largecap telecom stock is down 62% from its 52-week high of ₹19.15 touched on June 28, 2024. The stock has fallen nearly 47% in the past six months in contrast to 14% rise in the share price of rival Bharti Airtel and 4% growth in benchmark Sensex during this period. Despite this consolidation phase, brokerages remain largely positive about the stock as capital infusion and tariff hikes generated hopes of revival for the debt-laden telco.

For the second quarter ended September 30, 2024, Vi’s consolidated net loss widened to ₹7,176 crore, up from ₹6,432 crore in the previous quarter. However, on the year-on-year basis, the loss narrowed from ₹8,737 crore in Q2 FY24 amid rise in revenue following recent tariff hikes. The revenue from operations increased 2% year-on-year (YoY) and 4% quarter-over-quarter (QoQ) to ₹10,932 crore in Q2 FY25. The revenue benefited from average revenue per user (ARPU) growth of 6.8% QoQ and 9.9% YoY to ₹156. At the same time tariff hikes lead to elevated subscriber loss, with 4G subscriber base falling by 0.8 million QoQ to 125.9 million due to dual SIM consolidation and loss of market share to BSNL.

Debt funding, subscriber base key trigger for the stock

Following Q2, ICICI Securities has maintained ‘Hold’ with a revised price target of ₹7 from ₹11 earlier. Nuvama has also retained ‘Hold’ on the stock with a target price of ₹7 from ₹11.5. Besides, Motilal Oswal has given ‘Neutral’ rating on Vi with a revised price target of ₹8 per share.

Foreign brokerage firm Nomura India reaffirmed 'Buy' rating on Vi with an ambitious target price of ₹14, a potential 91% upside from Friday’s closing price of ₹7.34 per share.

ICICI Securities in its report says that Vi lost higher than expected subscribers, particularly, 2 million despite its largest 4G network expansion. “VIL expects to reverse the trend by growing its subscriber base from end-FY25. It has been in discussion with the government for waiver on bank guarantees and intervention in adjusted gross revenue (AGR) matter.”

On debt funding, the brokerage said that the company is on track for securing capital. It expects cash shortfall towards government dues to be converted into equity.

Vi’s net debt stood at ₹2,03,200 crore  in Q2 FY25, up ₹7,200 crore on account of recognition of ₹3,500 crore towards spectrum purchased in June 24 auction. It is required to provide bank guarantee of ₹24,700 crore for dues where moratorium is about to expire. Besides, the telco is in discussion with the government, requesting its support by providing a waiver for bank guarantees. It is also seeking government intervention in AGR matter where the Supreme Court has rejected to admit curative petition on technical grounds. VIL, along with promoters, is in discussion with banks for debt funding which may help the company in rolling out 4G and 5G networks in next three years.

Nuvama in its report highlighted that the SC’s rejection of the curative petition on AGR dues has dealt a big blow to fund raising plan. “Management also alluded to banks and financial institutions raising concerns about its proposed debt raise (₹25,000 crore), in the wake of the SC’s rejection of the curative petition on AGR dues. While management continues to highlight that any waiver of AGR dues was not part of its business plan, the debt-raise is likely to be delayed.”

Motilal Oswal in its report says that net debt increased ₹9,200 crore on repayment of vendor and banking dues and spectrum purchases, while capex inched up to ₹1,400 crore (from ₹800 crore QoQ). Vi plans to embark on a significant capex cycle (₹50,000-55,000 crore over the next 2-3 years) to bridge the network gap with peers, while the network investments are contingent on debt raise, it says in a report.

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