Vodafone Idea Needs 160% ARPU Surge To Sustain Free Cash Flow, Says Goldman Sachs

Vodafone Idea Ltd. would need to increase its Average Revenue Per User by 160%, or Rs 280, to sustain free cash flow, according to Goldman Sachs. The brokerage flagged this as a critical challenge for the telecom operator, which reported a 5.6% sequential rise in ARPU in the July–September quarter, far below the required level.

The company’s financial struggles were underscored by its September quarter performance. Its consolidated net loss widened to Rs 7,175.9 crore from Rs 6,432.1 crore in the previous quarter. Revenue grew 4% quarter-on-quarter, but Ebitda missed estimates by 22%. Subscriber losses continued, with 32.8 lakh users exiting the network in July and August.

Despite a modest ARPU increase—driven by tariff hikes—across private operators in July, Vodafone Idea faces mounting payment obligations totalling Rs 2.12 lakh crore. This includes Rs 1.41 lakh crore in deferred spectrum dues and Rs 70,320 crore in adjusted gross revenue payments. The company expects any near-term cash shortfall to be converted into equity by the government.

Goldman Sachs lowered its revenue and Ebitda estimates for Vodafone Idea by up to 5% and 13%, respectively, citing continued subscriber erosion and weak operational metrics. It also revised its 12-month DCF target price to Rs 2.4 from Rs 2.5, implying a 67.3% downside.

The brokerage maintained a 'sell' rating, highlighting that Vodafone Idea’s balance sheet remains stretched despite potential equity conversion of dues by the government.

Goldman Sachs noted that Vodafone’s incremental Ebitda margin was around 50%, compared to Bharti Airtel’s 70%, while its capital expenditure continued to lag peers. It also raised concerns about the timing of the company’s debt-raising efforts, which depend on clarity over adjusted gross revenue payments—another timeline that remains uncertain.

Vodafone Idea shares trade at 22 times its fiscal 2026 estimated Enterprise Value/Ebitda, a sharp premium compared to Bharti Airtel’s 12 times, despite its weaker growth and return profile. Goldman Sachs projects mid-single-digit returns on capital employed for Vodafone Idea during the forecast period, significantly below Bharti Airtel and Jio’s 17–18%.

The brokerage also flagged potential negative implications for 'sell' rated Indus Towers, due to Vodafone Idea’s delayed debt-raising plans.