Vodafone Idea shares have 'limited downside risk', Motilal Oswal says after Q2 results

Brokerage firm Motilal Oswal believes that shares of struggling telecom operator Vodafone Idea Ltd. (VIL) have a limited downside risk, but several factors need to fall in place for a sustained revival of the company.

Motilal Oswal maintained its recently upgraded "neutral" rating on the stock and marginally revised its price target to ₹9.5 from ₹10 earlier in its note on Wednesday, November 12.

The brokerage stated that Vodafone Idea's capex moderated further in the first half of the financial year with an ₹8,000 crore expected for the full year based on its internal accruals. "However, external fund raise remains critical for Vodafone Idea to achieve its earlier guidance of ₹50,000 crore to ₹55,000 crore capex in the next three years," Motilal Oswal said.

Vodafone Idea continued to lose market share during the quarter and as per Motilal Oswal's estimates, that figure stood at 20 basis points sequentially in revenue and subscriber market share to its private peers.

Supreme Court's recent judgment on AGR dues is a positive for Vodafone Idea nad could lead to its long-pending debt fund raise. However, beyond a partial AGR dues reduction, which Motilal Oswal believes will be a 50% waiver, the company will also require favourable payment terms for both AGR and Spectrum dues.

Tariff hikes and a reduction in competitive intensity in customer acquisitions will also be key to ensure a sustained revival, Motilal Oswal wrote in its note, adding that the latter two factors are not entirely in the company's control as competitive intensity may increase if the company becomes more competitive on subscriber additions.

Yet, Motilal Oswal has raised its financial year 2026-2028 pre-INDAS estimates for Vodafone Idea's Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) by 2% to 6% mainly driven by cost efficiency. The downside risk is limited considering the government's support to ensure its long-term survival.

Vodafone Idea's most recent quarter saw losses narrow to the lowest in 19 quarters, while its Average Revenue per User (ARPU) improved to ₹167, but well below its peers Reliance Jio and Bharti Airtel.

Shares of Vodafone Idea ended 7.3% higher on Tuesday at ₹10.19. The stock is 8% away from its FPO price of ₹11 per share.