Vodafone Idea’s stock experienced a sharp 14% drop on Friday, falling to Rs 12.91 from the previous day’s closing price of Rs 15.09. This significant decline comes in response to a drastic reduction in the company’s target price by global brokerage firm Goldman Sachs, which has now set the target at Rs 2.5. Goldman Sachs has also highlighted a potential downside risk of up to 83% for the stock.
Goldman Sachs’ forecast suggests that Vodafone Idea could face further challenges, projecting an additional 300 basis points of share loss over the next 3-4 years. The brokerage cited substantial AGR (Adjusted Gross Revenue) and spectrum-related payments starting in FY26. Although the government has the option to convert some of these dues into equity, Goldman Sachs estimates that the Average Revenue Per User (ARPU) would need to increase by Rs 200-270, or 120%-150%, compared to December 2024 estimates, for the company to achieve sustainable free cash flow neutrality.
Vodafone Idea recently raised Rs 20,100 crore through a follow-on public offer and promoter capital infusion and plans to raise an additional Rs 25,000 crore in debt. However, Goldman Sachs anticipates that even with these measures, the company would require ARPUs to rise 2.2 to 2.5 times December 2024 levels by FY27 to achieve free cash flow neutrality. The brokerage’s base case forecast includes a 15% annual increase in ARPU, in line with recent tariff hikes, which would necessitate 6-7 years of such increases to reach free cash flow neutrality.
Leave a Reply