Vodafone Idea Shares Fall As Macquarie Downgrades To 'Underperform'

Vodafone Idea Ltd.'s share price declined over 4% on Friday, as Macquarie remained cautious on the stock due to concerns over cash flow generation. Macquarie downgraded the stock to 'underperform' rating, with a target price Rs 6.50 apiece, which implied 26% downside from Thursday's closing price.

The brokerage deemed the Government of India's decision to convert its dues for financial year 2026 into equity as a 'bandage work'. Vodafone Idea has net debt of $26.7 billion as of Dec. 31, 2024. Post equity conversion, the debt will reduce to $22.5 billion. However, the level of debt will remain high with net debt 10 times FY26 Ebitda, Macquarie said.

The brokerage was expecting timeline extension. The support from the government highlights the intent for a telecom market, which will have three players. After the conversion, the Government of India will have 48.99% stake in Vodafone Idea, compared to 22.6% stake earlier. Promoters Aditya Birla Group will have 9.5%, and Vodafone Group will have 16.1%.

As Vodafone Idea's cash flow generation remains inadequate, its debt repayment capability is reduced. Macquarie sees further equity dilution risk for minority stake holders in medium term. Keeping in mind the equity dilution risk, the brokerage gave a very low target price.

Positive catalyst for Vodafone Idea would be debt financing, new capex plans, and government concession on past dues, Macquarie said.