Global financial services firm UBS has upgraded Vodafone Idea to a Buy rating from its previous Neutral stance. The upgrade comes with an increase in the target price, which has been raised to Rs18 from Rs13.1 earlier, suggesting a potential upside for the Vodafone Idea share price.
Focus on Relief on Government Dues Drives Upgrade
The key driver behind UBS’s upgrade of Vodafone Idea is the potential relief on government dues. The market is pricing in a 15%-20% mobile price increase in the coming 12-24 months as Vodafone Idea’s Follow-on Public Offering (FPO) comes to a close. UBS believes that relief in the form of Adjusted Gross Revenue (AGR) reduction by the Supreme Court or equity conversion and moratoriums by the government is likely, given the government’s stated objective of ensuring three viable private telecom operators in the country.
Vodafone Idea Leveraged to Potential Relief
UBS notes that Vodafone Idea is most leveraged to any potential relief on government dues, yet the Vodafone Idea share price is currently trading at a similar valuation as its competitors, Airtel and Jio. This presents a risk-reward scenario for the Vodafone Idea share price going into any potential announcement regarding relief measures.
Reduction in AGR Dues Could Impact Vodafone Idea Share Price
UBS estimates that a significant portion of AGR dues could potentially be cancelled, providing financial relief to Vodafone Idea. This reduction in AGR dues could impact the Vodafone Idea share price, as the company’s financial burden would be reduced.
Competitive Landscape and Vodafone Idea Share Price
With Airtel and Jio focused on prioritizing Return on Invested Capital (ROIC) over market share gains, the competitive landscape appears to be stabilizing. This development may have implications for the Vodafone Idea share price, as the company may be able to focus on improving its financial performance.
The upgrade of Vodafone Idea to a Buy rating by UBS, along with the increased target price, highlights the potential for the Vodafone Idea share price to be impacted by government support and market conditions. As the telecom sector awaits further developments regarding potential relief measures, investors may consider the risk-reward scenario for the Vodafone Idea share price.
Disclaimer: The information provided is for informational purposes only and should not be considered as investment advice. Investing in the stock market carries risks, and investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
