Bank of America Securities has upgraded its rating on Vodafone Idea Ltd to 'Neutral' from 'Underperform,' citing the telecom company's potential as a pure-play telco to leverage tariff hikes effectively. Additionally, following a recent successful fundraise, there are expectations for improvements in its 4G network infrastructure, which could aid in halting its market share decline.
The brokerage has also revised its price target upward to Rs 14.5 per share from the previous target of Rs 9.4 per share. At 03:09 pm, Vodafone shares traded 0.4 percent higher at Rs 13.25.
BofA refrained from recommending a 'Buy' rating for Vodafone, citing the need for additional clarity regarding the company's funding position after FY26.
BofA expressed increased optimism about the near-term momentum for the telecom sector, expecting tariff hikes to reach 20-25 percent compared to the brokerage's earlier projection of 10-15 percent. The brokerage also anticipates that improving cash flows resulting from these hikes will be utilised by telcos to expand high-margin fiber broadband services.
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BofA's bullish outlook on tariff hikes stems from several factors, including telcos' willingness to participate, consumers' capacity to absorb a 20-25 percent hike due to limited alternatives and the growing stickiness of data offerings, continued government support, and potential investments in data centers to capitalise on AI-led opportunities.
The consensus among telecommunications companies to avoid disruptive pricing strategies is contributing to market stability. Another significant event on the horizon is the potential IPO of Reliance Industries Ltd's (RIL) telecom arm, Jio, a development previously hinted at by RIL management.
According to BofA, tariff hikes could occur after general elections. If the upcoming hike is well absorbed by consumers, there is a higher possibility of another hike within the next 12 months as telcos seek to monetise their 5G investments.
BofA considers Bharti Airtel as the best-positioned entity to benefit from these tariff hikes, while Indus Towers emerged as a preferred pick in the telcos sector for the brokerage.
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