Telecom stock jumps 11.6% after UBS gives it a buy call for an upside of 20%

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Telecom stock jumps 11.6% after UBS gives it a buy call for an upside of 20%
Credit: © Reuters.

The shares of this leading telecom firm jumped 11.6% after UBS revised the target price from “Neutral” to a “Buy” rating with an upside potential of 20%.

At 3:00 p.m., On Friday, Vodafone Idea (NS: VODA ) Ltd shares were trading at ₹15.10 per share, up ₹1.03 or 7.47 percent on the National Stock Exchange from the previous close price. The company has a market capitalization of ₹1,00,922 crore.

Vodafone Idea, a part of Aditya Birla Group, is engaged in telecom services and the trading of handsets and data cards.

Vodafone Idea is one of the leading telecom service providers in India. The Company is engaged in the business of Mobility and Long Distance services, trading of handsets and data cards.

Over the past six months,Vodafone Idea Ltd shares have witnessed a significant 12 percent increase, while over the last 12 months, its shares have surged by 116 percent.

In comparison to the previous quarter, operational revenue increased by 0.7 percent, rising from ₹10,532 crore in Q4FY24 to ₹10,607 crore in Q4FY24. Additionally, net losses increased from ₹6,419 crore to ₹7,675 crore, as reported in the company’s exchange filing.

A global research and broking firm, UBS upgraded the stock to Buy from Neutral with a revised target price of ₹18 from the current price of ₹15.10 representing a 20 percent increase.

The international brokerage anticipates a significant surge of 70-80 percent in the stock’s value in the near future. They highlighted the possibility of relief measures like a reduction in AGR by the Supreme Court or equity conversion, alongside government moratoriums. These measures seem highly probable, especially considering the government’s aim to maintain three viable private telecom companies.

UBS factors in a 50 percent chance of AGR dues waiver in its considerations. Although there are other potential relief options such as spectrum dues cancellation, deferral, or equitization, the brokerage deems these to be less likely and thus not included in its fundamental price target assessments.

According to analysts at UBS, the stock market is factoring in a mobile price increase of 15-20 percent over the next 1-2 years. As Vodafone Idea’s follow-on public offer (FPO) concludes, Bharti Airtel (NS: BRTI ) and Reliance (NS: RELI ) Jio are shifting their focus towards prioritizing return on invested capital (ROIC) rather than solely aiming for market share gains.

Vodafone Idea (VIL) is expected to make annual payments to the government exceeding $5 billion starting from FY26, comprising $2 billion for AGR and $3 billion for spectrum. Upon scrutinizing the details of the curative petition filed by telecom companies regarding the AGR case, analysts speculate that VIL could potentially see 50-75 percent reduction in its AGR dues.

According to the most recent shareholding pattern data for the March quarter, the company’s ownership structure reveals that promoters maintain a 36.88 percent stake, while domestic institutional investors (DIIs) own 2.59 percent. Additionally, Foreign Institutional Investors hold a stake of 11.39 percent.

Written by Omkar Chitnis

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