Goldman Sachs (GS) has reiterated its “Sell” rating on Vodafone Idea (VI), India’s third-largest telecom operator. The investment bank has set a target price of Rs 2.5 for the stock, reflecting a pessimistic outlook on the company’s future prospects.
Key Points:
- Capital Raise Inadequacy: While acknowledging that VI’s recent capital raise is incrementally positive, GS believes it is insufficient to halt the company’s ongoing market share erosion.
- Market Share Forecast: Goldman Sachs projects a further 300 basis points (bps) loss in market share for Vodafone Idea over the next 3-4 years.
- ARPU Requirements: For VI to achieve sustainable free cash flow neutrality, GS estimates that Average Revenue Per User (ARPU) would need to increase by Rs 200-270.
- Government Intervention: The analysis suggests that the probability of reaching the required ARPU levels in the medium term is low, unless the government converts its dues into equity.
Investors should carefully consider these factors and the company’s ability to overcome these challenges before making investment decisions regarding Vodafone Idea.
