Beware! Analysts see 50% drop in this midcap

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Brokerages slashed target prices on Vodafone Idea by over 50% despite the company narrowing losses for the third quarter ended December 31.

The telco reported a consolidated loss to Rs 4,532.1 in Q3FY21, mainly on account of a one-time gain from stake sale in Indus Towers. It had posted a loss of Rs 6,438.8 crore in the same quarter a year ago.

Emkay Global Financial Services cut the target price to Rs 5, indicating a downside of 59% from the current market price of Rs 12.09. Commenting on the quarterly results, the brokerage said that VIL reported in-line results, with EBITDA rising 2.6% QoQ after adjusting for the oneoffs/change in accounting policy. Shrinkage in the subscriber base of 2 million was lower than expectations and compared to an average of 10 million loss in the last four quarters.

“We continue to highlight that multiple rounds of tariff hikes, along with potential fund-raise and in turn ramp-up in capex spends, are essential to lift the company from the current gloomy scenario. We maintain ‘Sell’ with a target price of Rs 5,” Emkay said in a report.

The company sold 11.15% stake in Indus Towers on the completion of its merger with Bharti Infratel for Rs 3,760 crore and paid Rs 2,400 crore to the merged entity as per its agreement during the reported quarter.

Revenue from operations declined by 1.7% to Rs 10,894 crore during the reported quarter from Rs 11,089.4 crore in the same quarter a year ago.

ICICI Securities also cut the target price to Rs 6 for Vodafone Idea (VIL).

“VIL remains the weakest private telco. While AGR dues payment extension was a short-term breather, its survival hinges on quick capital infusion and tariff hike/floor tariff implementation. The need for capitalisation is of paramount importance mainly due to its lagging spends on the network and relative market share loss,” the brokerage said adding it is monitoring triggers like fundraise, tariff hike, before changing its stance.