Subscriber Churn Emerges as Major Issue for Vodafone Idea, Says MOFSL

Motilal Oswal Financial Services (MOFSL) has highlighted subscriber churn as a major challenge for Vodafone Idea‘s stock despite their optimistic view on the company’s significant capital expenditure plans. The investment firm maintains that the key factor for the telecom operator’s stock movement will be curbing subscriber churn.

According to MOFSL, Vodafone Idea has witnessed steady Average Revenue Per User (ARPU) growth, largely attributable to increased 4G adoption, better data monetization, and higher minimum recharge vouchers. However, high churn rates have offset these successes. MOFSL attributes this issue to “limited network investments, which have impacted customer experience, leading to elevated churn.”

To tackle these concerns, Vodafone Idea has announced a substantial investment plan ranging from Rs 50,000 to 55,000 crore over the next three years. This plan focuses on expanding 4G coverage, rolling out 5G services, and increasing capacity. MOFSL states these initiatives are crucial for the company’s future, with expectations that subscriber churn will decrease from the fourth quarter, owing to the commencement of capital expenditure rollouts in the third quarter.

The telecom operator also updated stakeholders on its Rs 5,000 crore debt fund, expecting its conclusion within the next 7-8 weeks. Moreover, Vodafone Idea anticipates another tariff hike of around 20 percent next year, potentially enhancing its ARPU and earnings. Despite these strategies, MOFSL has decided to adopt a ‘neutral’ stance on the stock, assigning a price target of Rs 12, suggesting a potential upside of over 11 percent from the previous close.

In a recent conference call, Vodafone Idea disclosed its ongoing discussions with senior government officials regarding the Adjusted Gross Revenue (AGR) case, notwithstanding the Supreme Court’s rejection of its curative petition. MOFSL remarked that Vodafone Idea is preparing a detailed report to address calculation errors and plans to reengage with the government soon. However, the company clarified that its long-term business strategy does not rely on potential outcomes from the AGR matter.

On Monday, shares of Vodafone Idea increased by over 3 percent, closing at Rs 10.82 on the National Stock Exchange (NSE), as investors reacted positively to the initiation of the company’s extensive capex plan.