Vodafone Idea shares get big upgrade from UBS; stock up 5%

Telecom operator Vodafone Idea today found another backer when global broking firm UBS upgraded the stock to buy with a target price of Rs 18, saying that it is expecting relief on government dues as well as a mobile price increase. Following the upgrade, the stock jumped over 5% to Rs 14.82.

“We believe the market is pricing in a 15-20% mobile price increase in the coming 12-24 months as VIL FPO comes to a close and Airtel and Jio are incentivised to prioritise ROIC over market share gains. That said, we believe relief in the form of AGR reduction by the Supreme Court or equity conversion, moratoriums etc by the Government is highly likely, especially given the Government’s stated objective of ensuring three viable private telcos,” UBS said.

VIL, it said, is the most leveraged to any such relief, yet the stock is trading at a similar c11x FY26e EV/EBITDA as Airtel and Jio. “We believe risk-reward is attractive going into any such announcement and upgrade to Buy. Maintain Neutral on Bharti and Indus,” it said.

Also read | Nomura upgrades Vodafone Idea, doubles target price. Should you buy?

VIL’s annual payment to the government will be over $5 billion from FY26 onwards, including US$2bn for AGR and US$3bn for spectrum.

“Looking at the details of a curative petition filed by telcos on the AGR case, we believe as much as 50-75% of AGR dues could potentially be cancelled for VIL. Assuming AGR dues are completely waived, our DCF value could increase to Rs 24 per share, vs Rs 12 when there are no waivers,” UBS said.

Earlier Japanese broking firm Nomura had also upgraded the stock to neutral from a reduce rating with a revised target price of Rs 15 from Rs 6.5.

“We note the outlook for the industry has improved considerably with all players aligned on the need for ARPU hikes and the industry setting into a 3-private player market. We trim our FY25F EBITDA by 2% and raise FY26F EBITDA by 6%, on factoring in lower subscriber losses,” Nomura analyst Hemang Khanna had said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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