Almost 100% potential upside! Citi says stars finally aligning for Vodafone Idea; sees it hitting ₹25 in bull case

livemint.com:

Vodafone Idea, believes global brokerage house Citi Research. After an almost 87 percent jump in Vodafone Idea in the last one year, the brokerage expects another almost 100 percent potential upside in the telecom stock in its bull case scenario. In this scenario, it has a target price of ₹25 for the stock, indicating an upside of 97 percent from its current market price of ₹12.7.

Key assumptions behind its bull case TP of ₹25 are - 1) Higher tariff hikes (20 percent each), taking FY28E ARPU (average revenue per user) to ₹250; 2) Higher subscriber additions; 3) Decline in AGR (adjusted gross revenue) debt by over 50 percent ( ₹35,000 crore); and 4) FY28E net debt/EBITDA ratio of 5x. "The stars are finally aligning for VI following completion of its long-delayed equity raise. The govt’s backing, which we view as tantamount to doing what it takes to ensure that the 3-player industry structure stays intact, has been instrumental in setting up the company for this turnaround and providing it a “fresh lease of life", as KM Birla proclaimed.

We, too, are enthused by recent developments, with the ₹20,000 crore equity raise (over ₹25,000 crore planned debt raise) enabling VI to accelerate network investments and narrow the gap with peers on 4G coverage and 5G rollouts," said Citi. However, it cautioned that a lot still needs to fall into place, starting with (multiple) tariff hikes & arresting the subscriber decline, and ideally culminating in (some form of) debt relief, driving its Neutral/High-Risk rating for the stock. The brokerage incorporated the equity raise and increased its FY25-26E EBITDA by 5-18 percent.