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Vi stock reaches over 3-month high, rises 26% in 6 days

Shares of Vodafone Idea (VIL) hit a three-month high of Rs 16.70, gaining 3 per cent on the BSE in Wednesday’s intra-day trade on expectations of earnings improvement. The stock was trading at its highest level since February 27, 2024. It had registered its 52-week high of Rs 18.42 on January 1, 2024. In the past six trading days, the stock price of Voda Idea has rallied 26 per cent.

Shares of Vodafone Idea (VIL) hit a three-month high of Rs 16.70, gaining 3 per cent on the BSE in Wednesday’s intra-day trade on expectations of earnings improvement. The stock was trading at its highest level since February 27, 2024. It had registered its 52-week high of Rs 18.42 on January 1, 2024. In the past six trading days, the stock price of Voda Idea has rallied 26 per cent.

With the recent up move, currently, Voda Idea stock was trading 51 per cent higher as against its follow- on-public offer (FPO) price of Rs 11 per share. The company had raised Rs 18,000 crore through its FPO. It had also raised Rs 2,075 crore by issuing 1395.4 million equity shares at Rs 14.87 per share to promoter group company.

The Indian telecom sector is likely to witness significant tariff hikes in FY25 and FY26, which along with better subscriber mix, is expected to contribute to a substantial improvement in the Average Revenue Per User (ARPU) of all players including Voda Idea, believe analysts.

Last week Care Ratings (CARE) revised its rating assigned to the long-term bank facilities and short-term bank facilities of Voda Idea with a ‘Stable’ outlook.

The ‘Stable’ outlook reflects expectation of timely tie-up of long-term debt funds and equity raised from market and promoters, to provide support in strengthening Voda Idea’s 4G network and 5G rollout to augment its subscriber base, resulting in improving revenue visibility and boosting operating profitability, the rating agency said.

To augment its business and regain its market share, Voda Idea plans to make substantial investments in capex over the next 3 years ending FY27 in the range of Rs 50,000 crore to Rs 55,000 crore. The capex will be towards expanding 4G population coverage in 17 priority circles, 5G launch in key geographies and capacity expansion to address the increasing data demand.

As on May 31, 2024, the company continues to engage with lenders for tie-up of bank debt. The business plan aims to restrict churn in the subscriber base, increase overall subscriber base, translating to enhanced revenues and improved profitability in the medium term. Hence, timely tie-up of adequate bank finance and successful implementation of capex to uplift the business risk profile is critical from a credit perspective, CARE said.

Meanwhile, last month, global broking firm UBS upgraded the Voda Idea stock to ‘Buy’ rating with a target price (TP) of Rs 18.

UBS believes the market is pricing in 15- 20 per cent mobile price increase in coming 12-24 months for Vodafone Idea. The foreign brokerage said a relief in the form of adjusted gross revenue (AGR) reduction by the Supreme Court or equity conversion, moratoriums by the government is highly likely, especially given the government’s stated objective of ensuring three viable private telcos.

“Assuming AGR (adjusted gross revenue) dues are completely waived off, our DCF (discounted cash flow) value could increase to Rs 24 per share, versus Rs 12 when there is no waiver. Our TP of Rs 18 is based on a 50 per cent probability of AGR dues waiver,” the report said.

In a recent note, analysts at Nomura upgraded Vodafone Idea’s stock to ‘Neutral’ and said Voda Idea needs to traverse a long journey, but the tempest has largely passed and the company is gearing up to meet clear skies ahead.

The global brokerage firm in its note said, the outlook for the industry has improved considerably with all players aligned on the need for ARPU hikes and the industry setting into a 3-private player market.

Voda Idea being able to complete its fund raise has materially improved the outlook and will enable the firm to catch up with peers on network experience; commence 5G rollout; and compete effectively in the industry and curb its subscriber losses, Nomura had said in May 20 report. It expects the industry to take a material tariff hike of 15 per cent following the conclusion of the general elections, which should be a key trigger for the stock, and expects the government to offer some form of relief to the company when payments in FY25 come up.

In the last few years, the telecom industry witnessed consolidation in favour of the top 2 operators, as Voda Idea was unable to make investments in network. However, the recent fundraise by Voda Idea is expected to make the sector more balanced.

“While this can limit market share gain potential for both Airtel and JIO, we expect the three operators to prioritise improvement in their return on capital by raising tariffs. Even as Voda Idea resumes its network investments, we believe the period of tariff competition is now behind,” analyst at BNP Paribas said in its telecom sector update. Business Standard

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