Vodafone Idea Ltd (VIL) experienced a significant downturn in its stock value, plummeting nearly 20% on Dalal Street following a critical legal setback. This decline was triggered by the Supreme Court's dismissal of the company's curative petition, which aimed to seek a re-computation of its Adjusted Gross Revenue (AGR) dues. The ruling marks another chapter in the ongoing saga of financial struggles faced by the telecom firm, which has been grappling with substantial liabilities stemming from a 2019 Supreme Court decision that mandated telecom operators pay billions to the government based on an expansive definition of AGR.
The court's decision dealt a heavy blow to Vodafone Idea, as it had been hoping for a reconsideration of the hefty financial obligations, estimated at approximately ₹70,300 crore. This unfavorable ruling meant that the company would have to pay the full amount, leading to a swift sell-off in shares as investors reevaluated their positions amidst rising financial concerns.
In the wake of this sharp decline, various brokerages have provided differing assessments regarding Vodafone Idea’s future. Nuvama Institutional Equities, for instance, acknowledged the Supreme Court's ruling as a major setback but noted that the 20% drop in share price already seemed to account for the increased financial liability. Consequently, they adjusted their target price from ₹16.50 to ₹11.50, maintaining a 'Hold' recommendation. They emphasized the importance of monitoring critical operational metrics, including subscriber losses, potential tariff hikes, and capital expenditures, as these factors will significantly influence the company's future performance.
Conversely, Nomura India took a more optimistic stance, upgrading its recommendation from 'Neutral' to 'Buy' and setting a target price of ₹15. The brokerage believes that the worst may now be behind Vodafone Idea, particularly with the resolution of the AGR issue. Despite acknowledging the company's substantial debt burden, Nomura expressed confidence that government support would play a crucial role in helping the telecom provider stabilize and grow. They highlighted a positive outlook for the Indian telecom sector, underscored by expected tariff increases and the upcoming monetization of 5G services.
Nomura’s forecasts suggest a 12% increase in average revenue per user (ARPU) and a slowdown in subscriber losses, indicating that Vodafone Idea's earnings before interest, taxes, depreciation, and amortization (EBITDA) could grow at a compound annual growth rate (CAGR) of 15% between FY24 and FY27. The brokerage remarked, "The AGR outcome was a material overhang on VIL, and following the conclusion of this overhang, there is now incremental visibility on the way forward for VIL."
UBS provided a valuation range for Vodafone Idea, estimating the stock could be worth between ₹12 and ₹24. Although the current market price is slightly below this implied value, UBS cautioned that risks related to the company’s debt and financial stability remain significant. The brokerage also suggested that options such as equity conversion or payment deferrals could be explored by Vodafone Idea as it seeks to stabilize its financial standing.
As the situation unfolds, Vodafone Idea's journey reflects broader trends and challenges within the Indian telecom sector, where regulatory changes and competitive dynamics continue to shape the landscape. The coming weeks will be critical for Vodafone Idea as it navigates these challenges, reassesses its strategies, and seeks to regain investor confidence amidst ongoing market volatility.
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