Telecom players Vodafone Idea Ltd and Bharti Airtel Ltd shares sank over two percent on Friday, July 11, after international brokerage UBS downgraded its rating on the firms to amid expensive valuations.
The downgrade comes ahead of the sectors earnings results for the quarter ended June 30, 2025. UBS downgraded Bharti Airtel from 'neutral' to 'sell', and Vodafone Idea from 'buy' to 'neutral.' This means that UBS no longer has any buy-rated stocks in the domestic telecom space. The price target on Vi was cut to Rs 8.5 per share, and the target on Airtel was trimmed to Rs 1,970.
At 11.45 a.m., shares of Vi were quoting Rs 7.19, down 1.9 percent, recovering some intraday losses. Airtel's stock was down two percent at Rs 1,926.2 apiece.
"While we (and consensus) model a 10-12 percent price increase in late FY26, the probability of a delay cannot be ruled out as Indian mobile tariffs are now in line with global emerging markets," said UBS.
Moreover, UBS believes that mobile tariffs at the low end are now higher, which could result in operators limiting price increases at the lower-end plans. This, in turn, could limit revenue flow-through of price increases. "Given these downside risks and valuations which we believe are expensive, we downgrade our ratings."
Vodafone India can substantially benefit from relief on government dues, visibility remains low. Continued delays in Government relief measures have impacted VIL's debt raising efforts, potentially jeopardising its three-year capex plan of Rs 50,000-55,000 crore.
"We believe a full AGR waiver could add Rs 7.5 per share to Vodafone Idea's fair value and in our price target derivation, we build in a 50 percent probability of AGR relief, added UBS. Due to delays in both raising debt, as well as in any government measures, the company has continued to lose market share.
"While our base case remains that there is a relief in some form or shape, given the Government's stated desire to maintain three private telcos, it is difficult to determine the manner, magnitude or timing of such reliefs. Considering all this, we would be stay on the sidelines for now."
On the Airtel front, UBS is expecting a 10 percent ARPU hike over FY25-28, with later years largely being driven by secular factors. Even the FY26 tariff hike faces the risk of being delayed or coming in with a lower magnitude than anticipated.
After the latest tariff hike, Indian mobile revenues are 0.8 percent of GDP, which is in line with other
emerging markets. Also, entry pricing per month is now 1.25 percent of GDP per capita, which is at the high end of the range of emerging markets, noted the brokerage.
"While near-term tariff hike is priced in, we believe there are downside risks to mobile revenue growth estimates. Considering these factors, we believe valuations are expensive," said UBS.
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