Vodafone Idea is in the spotlight as Motilal Oswal Financial Services (MOFSL) expresses optimism about the telecom operator's ambitious capital expenditure (capex) plans. However, the key to the stock’s performance hinges on the company's ability to manage and reduce subscriber churn rates.
Investment strategy and growth plans
Vodafone Idea has announced a massive investment plan, with allocations between ₹50,000 crore and ₹55,000 crore over the next three years. This strategy aims to expand 4G coverage, initiate the rollout of 5G technology, and enhance overall network capacity. According to MOFSL, these investments are crucial for the company's future success, especially as the telecom sector remains competitive.
Current challenges
While Vodafone Idea has seen steady growth in Average Revenue Per User (ARPU) due to the adoption of 4G, better data monetisation, and higher minimum recharge vouchers, the company needs to work on high subscriber churn rates. MOFSL attributes these challenges to "limited network investments," which have adversely affected customer experiences.
Expectations for subscriber retention
Looking ahead, Vodafone Idea anticipates a reduction in subscriber churn starting in the fourth quarter. This optimism stems from the planned rollout of their capex initiatives, expected to commence in the third quarter. If these plans come to fruition, they could stabilise Vodafone Idea's customer base and make it an attractive option for those looking to invest in stocks.
Financial developments on the horizon
In addition to its capex strategy, Vodafone Idea is on track to conclude a ₹5,000 crore debt fund within the next seven to eight weeks. The company also forecasts a possible tariff hike of around 20 percent next year, a move that could significantly boost ARPU and overall earnings. These financial developments add to the company's appeal for investors looking to invest in stocks.
Analyst outlook and stock performance
Despite these promising signs, MOFSL maintains a 'neutral' stance on Vodafone Idea's stock, setting a price target of ₹12, which indicates a potential upside of over 11 percent from its previous close. Analysts are exercising caution, highlighting that while the plans are ambitious, they have yet to materialise.
Ongoing legal challenges
On a legal front, Vodafone Idea continues discussions with senior government officials regarding the Adjusted Gross Revenue (AGR) case, even after the Supreme Court rejected its curative petition. The company is preparing a detailed report to address calculation errors and plans to re-engage with the government soon. However, it has stated that its long-term strategy will not depend on the outcomes of the AGR situation.
Stock performance highlights
On a positive note, shares of Vodafone Idea closed over 3 percent higher at ₹10.82 on the NSE on Monday, reflecting investor enthusiasm over the initiation of the company's substantial capex plan.
Key takeaways
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