MOFSL sees subscriber churn as key challenge for Vodafone Idea stock

In the past session, volumes in the counter were also sharply higher.

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Motilal Oswal Financial Services (MOFSL) maintains an optimistic outlook on Vodafone Idea's significant capex plans but believes the key factor for the stock’s movement will be the telecom operator’s ability to curb subscriber churn.

Despite steady ARPU (Average Revenue Per User) growth driven by 4G adoption, better data monetization, and higher minimum recharge vouchers, Vodafone Idea has struggled with high churn rates. MOFSL attributed this to "limited network investments, which have impacted customer experience, leading to elevated churn."

However, Vodafone Idea has announced a Rs 50,000-55,000 crore investment plan over the next three years, aimed at expanding 4G coverage, rolling out 5G, and boosting capacity. According to MOFSL, these efforts are crucial for the company's future.

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Factoring these in, the telecom operator expects subscriber churn to reduce from Q4 onwards, since the capex rollout is expected to commence from Q3. Meanwhile, the company also gave an update on its debt fund Rs 5,000 crore, which it expects to conclude in the next 7-8 weeks. In addition, the telecom operator also foresees another tariff hike of close to 20 percent next year, which could further lift its ARPU and earnings.

Regardless, since the company's plans are yet to come to reality, MOFSL chose to keep a 'neutral' stance on the stock, assigning it a price target of Rs 12, implying a potential upside of over 11 percent from the previous close.

In a recent concall, the company shared ongoing discussions with senior government officials regarding the AGR case, despite the Supreme Court’s rejection of its curative petition. MOFSL noted that Vodafone Idea is working on a detailed report addressing calculation errors and plans to re-engage with the government soon.

Nevertheless, 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 closed over 3 percent higher at Rs 10.82 on the NSE, as  investors rejoiced the initiation of the company's mega capex plan.

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