Vodafone Idea shares: Nuvama doubles target price post FPO, sees Vi as 'going concern'

Nuvama said it has turned positive on the telecom sector. It felt a combination of tariff hikes and government support should boost the operators' financials and returns profiles. Nuvama sees Bharti Airtel Ltd as the best way to play this event in the sector and raised its target price. It has also upped Vodafone Idea's price target, upgrading it to 'Hold' rating, as it sees the company finally becoming a 'going concern'.

"We are biding our time for more concrete steps to play out and Vodafone Idea becoming an investible idea," it said.

Vodafone Idea price target

Nuvama upgraded Vodafone Idea's target price to Rs 14 from Rs 7 earlier and suggested a rating of 'Hold' on the stock. It said Vodafone Idea's big problem, even after its FPO and tariff hikes, is its stretched balance sheet laden with liabilities of Rs 2.5 lakh crore and Rs 2.1 lakh crore being spectrum and AGR liabilities.

Vodafone Idea's cash flows, even on higher tariffs, should be inadequate to meet these obligations once the moratorium period ends in September 2025.

"Hence, it needs some sort of waiver on these liabilities. Even if it gets some waiver, it would need to compete with two large, well-established players in the sector with deep pockets and in much better financial and operational condition. Hence, the journey for Vodafone Idea, from a 'going concern' to an 'investible idea' is still some distance away in our opinion," the brokerage said.

That said Nuvama expects a total Rs 45,000 crore in fund raising by Vodafone Idea, comprising Rs 25,000 crore debt raise in Q2FY25. The brokerage sees Vodafone Idea capex at Rs 40,000 crore spread over next eight quarters. It also sees tariff hikes of 10 per cent in Q2FY25 and Q3FY26 each.

"The Vodafone Idea management is targeting multiple tariff hikes, in coming years to improve its ARPU and Ebitda. The company is looking to double its Ebitda to Rs 35,000 crore in next two-three years, which could then help it address its debt obligations. We build the following scenarios with the ARPU growth required for the targeted EBITDA levels," it said.

Vodafone Idea, Nuvama said, needs some sort of waiver on these liabilities. Given the matter is sub judice, it is difficult to comment on the possibility of the same.

"Another moratorium like the last one, will only be akin to kicking the can down the road, and not a permanent solution. We have long maintained that to survive and thrive, VIL needs all of the following three events to play out - capital infusion, tariff hikes and liability waiver. Possibility of the third one, remains elusive, at this point of time. We build the following scenarios for the possible reduction in AGR liability for VIL," it said.

The stock was trading 4.38 per cent lower at Rs 13.76. The capital raising committee of telecom operator on Monday approved the allotment of 16,36,36,36,363 shares of face value Rs 10 each at Rs 11 per share.

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