Vodafone Idea shares jump 10% on better outlook; here’s what analyst suggests

Shares of Vodafone Idea – a cash-strapped telecom company – were in demand during Wednesday’s session on the exchanges. The stock soared more than 10 per cent to touch the day’s high level of Rs 8.48 per share on the BSE today after TRAI released its quarterly telecom financial data for Q4FY23.

At around 10:48 AM, Aditya Birla Group-backed Vodafone Idea shares were quoted at Rs 8.10, up Rs 0.39 or 5.06 per share today as compared to the previous day’s closing of Rs 7.71 per share on the BSE.

“The telecom industry grew by 1.4 per cent quarter-on-quarter (QoQ) in the March quarter of FY23, led by ARPU (average revenue per user) growth of 1.5 per cent QoQ against average 3 per cent QoQ growth in the last 8 quarters," Motilal Oswal said citing Telecom Regulatory Authority of India data.

Industry subscriber growth was flat, indicating the underlying trend of consolidation of dual sim cards in the market, and upgrade from 2G to 4G, the domestic brokerage added.

Vodafone Idea gained 120 basis points market share in Mumbai to 24.7 per cent, partly attributed to the decrease in the 2G validity plan to 15 days from 28 days, gaining 7 per cent higher ARPU QoQ.

“The significant amount of cash required to service debt leaves limited upside opportunities for equity holders, despite the high operating leverage opportunity from any ARPU increase,” the domestic brokerage said in its valuation note on Vodafone Idea.

The current low EBITDA will make it challenging for the company to service the debt without an external fund infusion, Motilal Oswal said, retaining a ‘neutral’ stance on the stock with a target of Rs 7 apiece.

According to a Zee Business analyst, the telecom company’s business is likely to revive with Rs 14,000 crore capital raising plan. Promoters Aditya Birla Group and Vodafone UK together may contribute Rs 7,000 crore in the joint venture Vodafone Idea.

In a Q4 conference call, the management said that talks with three investors are at an advanced stage, besides, promoters have invested Rs 5,000 crore so far after the government's telecom revival package.

In February 2022, the government converted the debt into equity only on the trust of the promoter and capital investment. The company’s focus is on getting a loan of Rs 25,000 crore from domestic lenders.

Vodafone Idea share price history

Vodafone Idea shares in the last one month have surged nearly 15 per cent as compared to about a 2 per cent rise in the Nifty50 during the same period.

Year-to-date, the stock is down 8.5 per cent as against an almost 3 per cent surge in the benchmark index.