Foreign brokerage UBS has upped its rating on Vodafone Idea Ltd (VIL) to 'Buy' from 'Neutral', with a revised target price of Rs 18 from Rs 13.10 earlier. UBS, which sees scope for a 70-80 per cent VIL rally ahead, said a relief in the form of 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.
For now, UBS' target price of Rs 18 on Vodafone Idea is based on 50 per cent probability of AGR dues waiver. While other relief measures such as spectrum due cancellation, deferral or equitisation are also possible, UBS believes those as less likely and, hence, do not build them in its base price target calculations.
"VIL is most leveraged to any such relief, yet the stock is trading at similar c1 1 times FY26e EV/Ebitda as Airtel and Jio. We believe risk-reward is attractive going into any such announcement and upgrade to Buy," it said.
UBS said the stock market is pricing in 15-20 per cent mobile price increase in the coming 12-24 months, as Vodafone Idea follow-on public offer (FPO) comes to a close and Bharti Airtel Ltd and Reliance look to prioritise return on invested capital (ROIC) over market share gains. Ut maintained its 'Neutral' ratings on Bharti Airtel and Indus Towers.
"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 curative petition filed by telcos on the AGR case, we believe as much as 50-75 per cent 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 aid.
UBS, meanwhile, has made material increase in price target for Indus Towers. It upped its target price on Indus Towers to Rs 355 from Rs 220, as it incorporated an increased demand from a better funded VIL and repayment of historical dues from VIL.
"We have also made several changes to our estimates for Indus as we now factor in three sustainable private telcos in the Indian telco market. We now estimate tenancy ratio increases from 1.68x in FY24 to 1.70x by FY28 and that most of the receivables from VIL are cleared, which takes our DCF value to Rs 355 per share. Still, we maintain Neutral," it said.