Vodafone Idea (Vi) shares surged nearly 10 percent on May 24 after UBS upgraded the stock to a 'Buy' rating from 'Neutral', with a revised target price of Rs 18 from Rs 13.10 earlier.
The international brokerage, which sees scope for a 70-80 percent rally in the stock ahead, said that relief in the form of AGR reduction by the Supreme Court or equity conversion, along with government moratoriums, is highly likely, especially given the government's stated objective of ensuring three viable private telcos.
Currently, UBS has set a target price of Rs 18 for Vi, with considerations based on a 50 percent probability of AGR dues waiver. While there are other potential relief measures such as spectrum due cancellation, deferral, or equitisation, the brokerage considers these to be less probable and therefore, they are not factored into its base price target calculations.
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"VIL is most leveraged to any such relief, yet the stock is trading at a similar 11 times FY26e EV/Ebitda as Airtel and Jio. We believe risk-reward is attractive going into any such announcement and upgrade to Buy," UBS said.
VIL's annual payment to the government will be over $5 billion from FY26 onwards including $2 billion for AGR and $3 billion for spectrum. Looking at the details of the curative petition filed by telcos on the AGR case, analysts believe that as much as 50-75 percent 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, against Rs 12 when there are no waivers," it added.
According to analysts at UBS, the stock market is pricing in a 15-20 percent mobile price increase in the coming 1-2 years. A Vodafone Idea follow-on public offer (FPO) comes to a close and Bharti Airtel and Reliance Jio look to prioritise return on invested capital (ROIC) over market share gains.
UBS maintained its 'Neutral' ratings on Bharti Airtel and Indus Towers with a material increase in target prices for both.
The brokerage has raised its target price on Indus Towers to Rs 355 from Rs 220 earlier, as it incorporated increased demand from a better-funded VIL and repayment of historical dues from VIL. For Airtel, it raised the target price to Rs 1,430 per share from Rs 1,310 per share earlier.
Also Read | Turnaround strategy: What Vodafone Idea 2.0 will look like
At 9:30 am, Vodafone shares were trading nearly 5 percent higher at Rs 14.75 on the National Stock Exchange (NSE). Meanwhile, Bharti Airtel was up half a percent at Rs 1,380.50 per share and Indus Towers stock was trading 1.5 percent higher at Rs 349.00.
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