Vodafone Idea drops 13%, Indus Towers falls 6% after Goldman Sachs flags concerns

Vodafone Idea Ltd

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Shares of Vodafone Idea and Indus Towers took a massive dive on September 6 after Goldman Sachs, in its latest research report, expressed concerns over the telecom companies. Vodafone Idea's shares fell over 13 percent and hit a 52-week low of Rs 9.55 after Goldman maintained its 'Sell' rating on the stock but slightly increased the target price to Rs 2.5 from Rs 2.2, which suggested an 83 percent downside in the stock price.  Goldman, in its report, said that the company faces difficulties in achieving free cash flow break-even and recovering market share.

The outlook for Vodafone Idea seemed bleak with Goldman anticipating Vodafone Idea to lose another 300 basis points in market share over the next 3-4 years. Even in an optimistic scenario - where the company's adjusted gross revenue (AGR) dues are slashed by 65 percent, tariffs consistently increase, and no near-term government repayments are required - Goldman still sees a best-case implied value per share of just Rs 19

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Here are the other brokerage recommendations for Vodafone Idea:

Source: Bloomberg

Indus Towers' shares fell over 6 perent after Goldman downgraded the stock to 'Sell' from 'Neutral' rating, although it hiked the target price to Rs 350 from Rs 220. Goldman noted a disconnect between the company's fundamentals and its current valuations while also saying that the recent re-rating of Indus Towers is overdone. The firm sees limited visibility on medium- and long-term growth prospects. Goldman Sachs would adopt a more constructive stance only if Vodafone Idea, one of Indus's key clients, can successfully repair its balance sheet.

Notably, Indus Towers' stock has surged over 75 percent in the past six months and is currently trading at Rs 443, which is 26 percent above Goldman Sachs' target price of Rs 350.

Also Read | Govt won't interfere in Vodafone Idea's affairs, says telecom minister Scindia

However, for Bharti Airtel, Goldman Sachs significantly raised its target price to Rs 1,700 from the previous Rs 900, indicating an upside of 10 percent from the stock's current market price. The firm has also maintained its 'Buy' rating. The global brokerage said that strong growth and a turning point in free cash flow (FCF) and returns profile, warrant the stock's premium valuation.

Goldman believes Bharti Airtel's growth momentum will continue, driven by market share gains, organic growth levers, and potential future tariff hikes. The company's India revenue and EBITDA are expected to grow at 16 percent and 21 percent CAGR over FY24-27. Additionally, Goldman foresees Bharti Airtel achieving improvements in its balance sheet. The brokerage firm expects the company's net debt to approach zero by FY28.

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