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UBS upgrades Vi to ‘buy’ on potential AGR dues relief

Vodafone Idea Ltd. is likely to benefit from a potential reduction or waiver of adjusted gross revenue dues by the Union government, according to UBS Research, which has upgraded the stock to ‘buy’ from ‘neutral’. The brokerage has increased the target price from Rs 13.1 per share to Rs 18 apiece, implying a potential upside of 28% from the previous close.

The price target incorporates a 50% probability of AGR relief and a 10–12% tariff hike in the current financial year. VIL’s annual payments to the government will be over $5 billion from fiscal 2026, including $2 billion in AGR and $3 billion for spectrum, according to a note. “Looking at the details of the curative petition filed by the telcos on the AGR case, we believe as much as 50–70% of AGR dues could potentially be cancelled for Vodafone Idea.”

Assuming AGR is completely waived off, the discounted cash-flow value could increase to Rs 24 per share versus Rs 12 when there are no waivers, it said.

The brokerage maintains a ‘neutral’ rating on Bharti Airtel Ltd. and Indus Towers Ltd. with a target price of Rs 1,430 and Rs 355 apiece respectively.

UBS now factors in the three sustainable private telcos and estimates the tenancy ratio to increase from 1.68 times in fiscal 2024 to 1.70 times by fiscal 2028 and that most of the receivables from VIL are cleared. “Still, we maintain neutral as the FCF yield even in this scenario is 8.5% by FY27, making valuation fair at most.”

Shares of VIL rose as much as 11.7% during the day to Rs 15.7 apiece on the NSE. It was trading 8.19% higher at Rs 15.2 per share, compared to a 0.04% decline in the benchmark Nifty at 12:25 p.m.

India’s third largest telecom player by number of subscribers, raised Rs 18,000 crore through a recent follow on public offer. From the FPO price of Rs 11, the shareholders have now gained nearly 40% in a matter of a month.

The share price has risen 138.4% in the last 12 months and fallen 12.5% on a year-to-date basis. The total traded volume so far in the day stood at 1.9 times its 30-day average. The relative strength index was at 69.12.

Seven out of the 13 analysts tracking the company have a ‘buy’ rating on the stock, four recommend ‘hold’ and two suggest ‘sell’, according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 28.4%. NDTV Profit

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