Vodafone Idea’s stock took a significant hit on Friday, plunging over 14% after global brokerage firm Goldman Sachs issued a grim projection for the company. The stock dropped as much as 14.44%, reaching a low of ₹12.91 per share on the Bombay Stock Exchange (BSE), a dramatic fall that has sparked concerns among investors.

Goldman Sachs maintained its ‘Sell’ rating for Vodafone Idea and slightly adjusted its target price, raising it from ₹2.2 to ₹2.5 per share. Despite the increase, the target still suggests a massive 83% downside from Thursday’s closing price.

This alarming forecast underscores the ongoing challenges faced by the telecom operator, which continues to struggle with stiff competition, financial strain, and a shrinking market share.

The recent dip comes after Vodafone Idea managed to raise capital to bolster its financial standing. However, Goldman Sachs expressed skepticism over the effectiveness of this capital raise. According to the brokerage firm, while the infusion of funds may provide a short-term boost, it is unlikely to prevent further erosion of the company’s market share.

In fact, the firm predicted a loss of another 300 basis points (bps) over the next 3 to 4 years. This decline could weaken Vodafone Idea’s already fragile position in the highly competitive Indian telecom market, where it continues to battle giants like Bharti Airtel and Reliance Jio.

At around 10:45 a.m. on Friday, Vodafone Idea shares were trading at ₹13.25 per share, down by 12.19% on the BSE, reflecting the market’s reaction to Goldman Sachs’ bearish outlook. The telecom company has been on a volatile path, trying to stabilize amid regulatory pressures, competition, and financial challenges.

A critical issue highlighted by Goldman Sachs is the company’s Average Revenue Per User (ARPU), a key metric for telecom operators. For Vodafone Idea to reach a point where it can generate neutral free cash flow, Goldman Sachs estimates that its ARPU would need to increase significantly, rising by ₹200 to ₹270.

This seems like a difficult feat given the company’s current market position and ongoing challenges. Without this substantial rise in ARPU, Vodafone Idea might struggle to achieve sustainable financial health, leaving it vulnerable to further market pressure.

Moreover, the brokerage firm raised concerns about Vodafone Idea’s current stock valuation in comparison to its competitors. Despite having a weaker growth trajectory, lower margin returns, and a more strained balance sheet than its peers, Vodafone Idea continues to trade at a premium over Bharti Airtel and Reliance Jio.

Goldman Sachs questioned the justification for this premium, given that both Bharti Airtel and Jio have displayed stronger operational performance, better financial stability, and more growth potential in the market. This discrepancy in valuations could indicate that Vodafone Idea’s stock is overvalued relative to its fundamentals, further contributing to the firm’s bearish outlook.

The Indian telecom industry has been going through significant changes in recent years, driven by the rise of Jio and the intensifying competition between the remaining players. Vodafone Idea, the product of the merger between Vodafone India and Idea Cellular, was initially seen as a formidable competitor, but it has struggled to keep pace with the aggressive pricing strategies and technological advancements of its rivals.

Regulatory challenges, debt burdens, and a lack of sufficient financial flexibility have further compounded the company’s issues, leading to repeated struggles to maintain market share.

Investors have been closely watching Vodafone Idea’s efforts to secure its position in the market, particularly its moves to raise capital and invest in network expansion. While these efforts have provided some relief, they appear to be insufficient in addressing the deeper structural problems the company faces.

The prediction by Goldman Sachs has only added to the cloud of uncertainty surrounding Vodafone Idea’s future, raising questions about its ability to compete effectively in a market that continues to evolve rapidly.

As Vodafone Idea works to find a path forward, the coming months will be crucial for the company’s prospects. With market share continuing to erode and financial pressure mounting, Vodafone Idea faces an uphill battle to regain investor confidence and stabilize its operations.

The stark warning from Goldman Sachs serves as a reminder of the challenges that lie ahead for the telecom operator, and how difficult it may be to reverse its current trajectory.

The sharp fall in Vodafone Idea’s share price is a clear reflection of the market’s reaction to these concerns, and it remains to be seen how the company will respond to the mounting pressure. Investors will be keeping a close eye on any developments, particularly in terms of revenue growth, market share, and financial sustainability, as Vodafone Idea navigates this challenging landscape.