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From Goldman Sachs to ICICI Sec: Why brokerages are bearish on Voda Idea

Vodafone Idea’s (Vi) December quarter outcomes failed to budge brokerages into altering their bearish stance on the stock, even because the telecom operator reported narrowing of losses in the course of the quarter beneath evaluation.

The debt-ridden telecom agency, on Saturday, reported narrowing of consolidated loss to Rs 4,532.1 crore in Q3FY21, primarily on account of a one-time achieve from stake sale in Indus Towers. It had posted a lack of Rs 6,438.8 crore in the identical quarter a year in the past.

The company’s common income per consumer (ARPU) improved to Rs 121 from Rs 119 on a quarter-on-quarter foundation. However, this was nonetheless decrease than its rivals Bharti Airtel and Reliance Jio which have an ARPU of Rs 166 and Rs 151, respectively. The share of shoppers leaving its community has come down to 2.3 per cent within the third quarter in contrast to 2.6 per cent churn within the earlier quarter. But this determine is down over 11 per cent on a yearly foundation.

Irrespective, brokerages imagine that fundraise and a tariff hike are of significance and the administration has permitted elevating up to Rs 25,000 crore.

The shares of the agency have gained 26 per cent for the reason that finish of September 2020 towards a 41 per cent rise in Airtel and a fall of 9 per cent in Reliance Industries, guardian of Jio. During the identical interval, BSE Sensex has gained 37 per cent and BSE Telecom 40 per cent, ACE Equity knowledge present.

Going forward, analysts see up to 70 per cent draw back in shares of Vodafone Idea and count on them to as soon as once more flip into penny shares i.e. slip under Rs 10.

Here’s a have a look at what high brokerages mentioned.

Goldman Sachs | Target: Rs 3.2 | Downside Potential: 74%

We imagine a one-time capital elevate wouldn’t be a sustainable answer to Vodafone Idea’s stability sheet stress. We estimate the company’s EBITDA would want to be 4x versus December 2020 quarter ranges for Vodafone Idea to be FCF impartial; mentioned in a different way, its ARPU would want to be larger by c.Rs105, or 1.9x of present ranges.

An increase in ARPUs can solely be gradual, and thus for Vodafone Idea to get even shut to the required 1.9x ranges, the method of accelerating tariffs would want to begin within the quick future. Sell rated with 74 per cent potential draw back from present ranges on our new 12-month goal value of Rs 3.2 (from Rs3.3).

Credit Suisse | Underperform | Target: Rs 6 | Downside Potential: 51%

Leverage stays unsustainable at 25 instances regardless that it declined from 27 instances within the earlier quarter with the advance in EBITDA. Further, we spotlight that under-investment continues with capex of mere Rs 970 crore in the course of the quarter and Rs 2,610 crore for total 9MFY21. We imagine that VIL wants significant capital infusion on an pressing foundation to escape of this vicious loop of underinvestment and market share loss.

ICICI Securities | Sell | Target: Rs 6 | Downside Potential: 51%

VIL stays the weakest personal telco. While AGR dues fee extension was a short-term breather, its survival hinges on fast capital infusion and tariff hike implementation. The want for capitalisation is of paramount significance primarily due to its lagging spends on community and relative market share loss. We will monitor triggers like fundraise, tariff hike, earlier than altering our stance.

Emkay Global | Sell | Target: Rs 5 | Downside Potential: 59%

A deceleration within the tempo of subscriber losses, decrease churn and wholesome 4G additions have been particular positives within the quarter. That mentioned, though sustaining them is essential, it appears to be a frightening activity given constrained capex spends. Bearing in thoughts the upcoming 4G/5G spectrum auctions, disputed timelines for AGR fee and deferred spectrum obligation ranging from FY23E, we imagine a single spherical of fund-raising shall be like a “band-aid on a bullet hole” and will be unable to meet the upcoming money burn of Rs 24,400 crore in FY21-23E – regardless of assumed tariff hike in FY22E. Even then, any constructive final result of the petition for the recalculation of AGR dues might be a game-changer and may cut back overhang.

JM Financial | Sell | Target: Rs 7 | Downside Potential: 43%

While the fundraise of Rs 25,000 crore will assist VIL tide over close to time period liquidity points, we estimate that VIL would require an ARPU of Rs 200-210 by FY23E to meet its fee obligations. We reiterate Sell score due to the restricted visibility on tariff hikes.

MOSL | Neutral | Target Price: 11 | Downside Potential: 10%

The vital amount of money required to service its debt, leaves restricted upside alternative for fairness holders, regardless of the excessive working leverage alternative from any supply of ARPU improve. The present low EBITDA would make it difficult to service debt with out an exterior fund infusion. Assuming 10 instances EV-to-EBITDA with Rs 1.17 lakh crore internet debt, it leaves restricted alternative for fairness shareholders. We assign an EV-to-EBITDA of 10 instances on a FY23E foundation to arrive at our goal value of Rs 11 per share.

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