Goldman Sachs has adjusted its outlook on Vodafone (NASDAQ:VOD) Idea Ltd. (IDEA: IN), increasing the price target to INR2.50 from INR2.20, while continuing to recommend a Sell rating on the stock.
The revision follows Vodafone Idea's latest capital infusion which, according to the firm, may not be sufficient to halt the telecom operator's decline in market share.
The Goldman Sachs analysis indicates a strong link between capital expenditure (capex) and revenue market share.
With competitors expected to spend at least 50% more on capex compared to Vodafone Idea, the company is projected to lose an additional 300 basis points in market share over the next three to four years.
Vodafone Idea is also facing substantial payments related to Adjusted Gross Revenue (AGR) and spectrum starting in the fiscal year 2026.
While the government has the option to convert some of these dues into equity, Goldman Sachs estimates that Average Revenue Per User (ARPU) would need to increase by INR200-270, which is 120%-150% higher than the projected levels for December 2024, for the company to achieve sustainable free cash flow neutrality.
The firm considers such an increase in ARPU to be unlikely in the medium term.
Excluding any potential equity conversion by the government, the forecast anticipates that Vodafone Idea's free cash flow (FCF) will remain negative at least until the fiscal year 2031. This outlook paints a challenging financial future for Vodafone Idea, as it continues to navigate a highly competitive telecom sector in India.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.