Vodafone Idea - Initiation Of The Capex Cycle; Subscriber Metrics Could Improve From Q4: Motilal Oswal

Motilal Oswal Report

Vodafone Idea Ltd. has experienced a continued rise in average revenue per user, led by the shift to 4G, higher data monetization, and an increase in minimum recharge vouchers. However, it has experienced an elevated subscriber churn during this period.

Limited network investments have hindered the customer experience, resulting in subscriber churn. Over the next three years, the company expects to invest Rs 500-550 billion in expanding 4G coverage, launching 5G, and increasing capacity, all of which hold significant importance.  However, it still holds a debt of Rs 2 trillion with an annual installment of Rs 430 billion from FY26 onwards. This looks challenging against the Q1 FY25 annualized Ebitda (IND-AS 116) of Rs 80 billion.

The significant amount of cash required to service debt leaves limited upside opportunities for equity holders, despite the high operating leverage opportunity from any source of ARPU improvement. We expect the conversion into equity of unpaid installments post-moratorium to start by FY26/27.

We are factoring in a revenue/Ebitda CAGR of 11/31% over FY24-26E. Assuming 14 times enterprise value/Ebitda, coupled with net debt, we derive our target price of Rs 12. Restriction in the subscriber churn rate could remain a key catalyst for the stock.

We reiterate our Neutral rating on the stock.

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