Vodafone Idea Share 14% Dip: Can Goldman Sach 83% Downside Prediction Come True?
Vodafone Idea’s share price experienced a dramatic decline of over 14%, hitting a low of ₹12.91 on the Bombay Stock Exchange (BSE). This plunge followed a stark warning from Goldman Sachs, which predicted an 83% downside for the stock, setting a target price of just ₹2.50 per share. The brokerage maintained a ‘Sell’ rating on the stock, citing ongoing challenges for the telecom operator.
Main Points
Vodafone Idea’s Struggles in the Telecom Market
Vodafone Idea has been grappling with significant financial hurdles, including a substantial debt burden and increasing competition in the Indian telecom market. The company has lost approximately 500 basis points of market share over the past three years, falling behind rivals like Reliance Jio and Bharti Airtel. Goldman Sachs’ report highlights that Vodafone Idea’s recent capital raise, while seen as a positive step, is unlikely to be sufficient to halt the erosion of its market share.
Key Factors Behind the Decline
Goldman Sachs’ analysis points to several critical issues affecting Vodafone Idea:
- Market Share Erosion: The brokerage forecasts an additional 300 basis points decline in market share over the next three to four years. This is attributed to competitors investing at least 50% more in capital expenditure (capex) compared to Vodafone Idea.
- AGR and Spectrum Payments: The company faces significant adjusted gross revenue (AGR) and spectrum-related payments starting in FY26, with total dues estimated at nearly ₹70,000 crore. This financial burden complicates Vodafone Idea’s ability to achieve free cash flow neutrality.
- Free Cash Flow Challenges: Goldman Sachs predicts that Vodafone Idea’s free cash flow will remain negative until at least FY31. To achieve a sustainable cash flow position, the Average Revenue Per User (ARPU) would need to rise by ₹200-270, a target deemed unlikely in the medium term.
From a technical perspective, Vodafone Idea’s share price is currently trading below key moving averages, including the 50-day, 100-day, and 200-day averages. This alignment suggests a bearish trend, increasing the likelihood of further declines. The stock has broken below the lower Bollinger Band, indicating heightened volatility and potential continuation of the downward trend.
Mandar Bhojane, an equity research analyst at Choice Broking, notes that the immediate support level to watch is ₹12.20. If this level is breached, it could lead to deeper declines. However, a reversal around this support could present a buying opportunity, with potential targets of ₹15 and ₹17.5 if the stock stabilizes.
Contrasting Analyst Opinions
While Goldman Sachs has a pessimistic view on Vodafone Idea, other analysts, such as those from Citi, maintain a more optimistic outlook. Citi has set a target price of ₹22 per share, emphasizing the potential benefits of a favorable Supreme Court ruling regarding Vodafone Idea’s AGR dues. They believe that a favorable decision could significantly reduce the company’s debt burden and improve its financial outlook.
Summary of Analyst Ratings
- Goldman Sachs: ‘Sell’ rating, target price of ₹2.50, predicting an 83% downside.
- Citi: ‘Buy’ rating, target price of ₹22, highlighting potential benefits from a favorable court ruling.
Market Reaction and Future Outlook
The market’s reaction to Goldman Sachs’ report was swift, with Vodafone Idea shares opening lower and continuing to decline throughout the trading session. As of 10:45 AM, the stock was trading at ₹13.25, reflecting a 12.19% decrease. Investors are advised to closely monitor the stock, particularly around the critical support level of ₹12.20.
