Nuvama has picked two prominent telecom stocks- Bharti Airtel and Vodafone Idea

Nuvama has increased target prices for both the stocks, Airtel and Vi. While it has maintained its rating on Bharti Airtel, it has upgraded the rating for Vodafone Idea.

A combination of tariff hikes and government support should boost the operators’ financials and returns profiles. Nuvama sees Bharti Airtel Ltd as the best way to play this event in the sector and raised its target price. It has also upped Vodafone Idea’s price target, upgrading it to ‘Hold’ rating, as it sees the company finally becoming a ‘going concern’.

The brokerage says the successful completion of FPO by Vodafone Idea Ltd and the chain of events expected after that make for an inflection point for the telecom sector. The events should enable telecom operators to reclaim a fair share of the telecom sector value triangle — ceded over the last decade.

That said Nuvama expects a total Rs 45,000 crore in fund raising by Vodafone Idea, comprising Rs 25,000 crore debt raise in Q2FY25. The brokerage sees Vodafone Idea capex at Rs 40,000 crore spread over next eight quarters. It also sees tariff hikes of 10 per cent in Q2FY25 and Q3FY26 each.

“The Vodafone Idea management is targeting multiple tariff hikes, in coming years to improve its ARPU and Ebitda. The company is looking to double its Ebitda to Rs 35,000 crore in next two–three years, which could then help it address its debt obligations. We build the following scenarios with the ARPU growth required for the targeted EBITDA levels,” it said.

The telco needs some sort of waiver on these liabilities. Given the matter is sub judice, it is difficult to comment on the possibility of the same. “Another moratorium like the last one, will only be akin to kicking the can down the road, and not a permanent solution. We have long maintained that to survive and thrive, VIL needs all of the following three events to play out – capital infusion, tariff hikes and liability waiver. Possibility of the third one, remains elusive, at this point of time. We build the following scenarios for the possible reduction in AGR liability for VIL,” it said.

The stock was trading 4.38 per cent lower at Rs 13.76.

CT Bureau