Vodafone Idea shares rally nearly 3%: Here's what Nomura says about the company's biggest challenge

Vodafone Idea Share Price: Vodafone Idea shares traded nearly 3 per cent higher on Wednesday after brokerage Nomura said the telecom operator could report a slower pace of subscriber losses in the June quarter. The stock was trading at Rs 14.25, up 2.89 per cent, in afternoon trade.

The brokerage has retained its 'Neutral' rating on Vodafone Idea with a target price of Rs 12.60, saying the company's operational performance is showing signs of stabilising, although a sustained turnaround will depend on how quickly it can improve network quality and retain customers.

Subscriber trend may improve

After losing over 5 million subscribers in the March quarter, Vodafone Idea is expected to report a smaller decline in the three months ended June.

Nomura estimates the company could lose around 3 million subscribers during the quarter. While that would still mean a net decline in its customer base, the brokerage believes the pace of churn is easing as the company continues to invest in strengthening its network.

The improvement, if reflected in the results, would mark one of the first signs that Vodafone Idea's capital expenditure is beginning to have an impact on customer retention. Over the past few months, the telecom operator has stepped up investments after raising funds, with a significant portion earmarked for expanding 4G coverage and rolling out 5G services in select circles.

Tariffs unchanged, ARPU seen steady

Nomura does not expect any meaningful change in average revenue per user (ARPU) during the June quarter.

Since telecom companies did not implement tariff hikes during the period, revenue per user is likely to remain largely unchanged on a sequential basis. According to the brokerage, any meaningful improvement in ARPU will depend on future pricing actions by the industry rather than company-specific factors.

For Vodafone Idea, improving subscriber quality and retaining higher-paying users remain as important as expanding the customer base.

Execution remains the biggest challenge

Although Nomura expects operational trends to improve gradually, it believes the company still has significant work ahead.

The brokerage said investors should closely watch the pace of network rollout, as Vodafone Idea's ability to compete with larger rivals will depend on how quickly it can improve coverage and service quality. Delays in expanding the network or slower execution could weigh on customer additions and revenue growth.

The report also flags weaker subscriber additions and slower ARPU growth as risks that could affect the company's recovery over the coming quarters.

What the Street will watch

The June-quarter earnings will be closely tracked for more than just the headline numbers.

Investors are expected to focus on whether subscriber losses continue to narrow, management's commentary on the ongoing 4G and 5G rollout, and any indication of further improvement in network quality. Updates on capital expenditure and customer retention will also be important, particularly after the company accelerated investments following its recent fund raise.