After a steep selloff last year, Vodafone Idea shares have nearly doubled over the past 12 months, helped by AGR relief hopes and improving investor sentiment. Citi has now removed its 'High Risk' rating on the stock and raised its target price to Rs 17, implying an upside potential of about 22% from the previous closing price.
In its latest note, Citi Research changed its rating on Vodafone Idea shares to ‘Buy’ from ‘Buy-High Risk’ , taking several tailwinds including the government’s recent reassessment of AGR dues, rating upgrades, equity infusion by the Aditya Birla Group, and other factors into consideration.
“The company's balance sheet leverage has been uncomfortably high and worsened following the adverse Supreme Court verdict on the AGR issue in October 2019. However, government moves since then, including a moratorium on spectrum and AGR payments, partial conversion of spectrum dues to equity, and reassessment of AGR dues have together provided material balance sheet and cash flow relief. Planned equity infusion by the AB Group is an additional positive, which should enable the company to complete its long-pending bank fund raise, thereby resuming network investments,” it said.
Investor sentiment got a boost in May after the Department of Telecommunications (DoT) cut Vodafone Idea's AGR dues by 27% to Rs 64,046 crore as of December 31. The stock received another lift when the company reappointed Kumar Mangalam Birla as non-executive chairman, nearly five years after he stepped down amid the telco's financial troubles.
Citi said Vodafone Idea has laid out an aggressive three-year growth plan involving Rs 45,000 crore of capex. The investment will focus on expanding 4G and 5G coverage across its 17 priority circles, upgrading all 2G sites to 4G in five non-priority circles, and rolling out fixed wireless access (FWA) services.
The brokerage, however, flagged key risks to its bullish view, including delays in bank funding, intensifying competition that could limit future tariff hikes, continued subscriber churn, and slower-than-expected growth in 4G and 5G users.
Vodafone Idea share price
Vodafone Idea shares were trading marginally higher at around Rs 14 apiece on Tuesday. The stock has slipped over 1% in the past week but gained more than 36% in the last month and nearly doubled over the past year.
The stock has jumped 95% in three years and 58% in five years. The company currently has a market capitalisation of more than Rs 1.52 lakh crore.
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