Nomura has lowered the target price of telecom operator Vodafone Idea and maintained its “reduce” stance, given the ongoing uncertainty on the path of value creation.
Further, large dilution is expected from equity conversion on the deferment of adjusted gross revenue (AGR) and spectrum liabilities, which adds to the woes.
The brokerage said the telco’s third quarter results were modestly above its estimates, as higher-than-anticipated ARPU was partly offset by a decline in subscribers and higher marketing expenses.
Vodafone Idea’s consolidated net loss for the quarter ended December widened to Rs 7,990 crore, while revenues increased 9.3% year-on-year to Rs 10,621 crore.
However, the telecom operator continued to lose subscribers. Its subscriber base as on December 31 was 228.6 million, compared with 234.4 million a quarter ago.
The government has recently approved the conversion of Rs 16,133 crore interest dues of Vodafone Idea into equity after receiving a firm commitment from Aditya Birla Group to run the company and bring necessary investment. Post the allotment of equity, the government’s stake stands at 33.44% and it is the largest shareholder in the company.
According to analysts, the government clearing conversion of Vodafone Idea’s interest dues into equity is a near-term positive for the telecom company, as it would help free up some cash flows with possibility of tariff hikes up ahead.However, Nomura believes it is very tough for the telco to reverse the subscriber losses.
“Vodafone Idea will find it difficult to reverse the loss of subscribers, as it will lag Bharti AirteL and Reliance Jio (unlisted) in terms of pan-India network capabilities (4G/5G) and service offerings,” Nomura said
“The company’s constraints will lead to a significantly slower 5G rollout versus peers, which should lead to a further loss of subscribers. We value VIL at 11.5x FY25F EV/EBITDA, with a lower target price of Rs 5 as against Rs 8 earlier on factoring in the equity dilution following debt conversion of Rs 16,100 crore and aligning our model for 9MFY23 performance,” it said.
On Friday, Vodafone Idea’s stock closed 4% lower at Rs 7.20 apiece on the NSE. So far this year, the shares are down 10%
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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