Vodafone Idea shares surge 14% on turnaround plan
What's the story
Vodafone Idea's shares surged as much as 14% on Friday, following brokerages' positive assessment of the government's recent Adjusted Gross Revenue (AGR) relief package. The development is seen as a major boost to the telecom company's medium-term outlook. Citi, one of the leading brokerages, noted that the AGR relief has bolstered Vodafone Idea's capacity to implement an aggressive investment and growth strategy over three years.
Debt strategy
AGR relief to accelerate Vodafone Idea's debt-raising plans
Citi also said that the AGR relief, which offers significant cash flow support for the next decade, and the ongoing reassessment of AGR dues, should hasten Vodafone Idea's plan to raise ₹25,000 crore in debt. At a recent analyst meet, Vodafone Idea's management had revealed their intention to invest ₹45,000 crore over three years with an aim of tripling cash EBITDA.
Strategy concerns
Citi flags potential challenges in Vodafone Idea's strategy
While Citi acknowledged the ambitious nature of Vodafone Idea's implied 15% revenue CAGR, it also flagged potential challenges. The brokerage said the success of this strategy depends on execution, tariff hikes, and competitive intensity. Despite these concerns, Citi believes the strategy significantly improves prospects for Indus Towers—a major player in India's telecom infrastructure sector.
Market impact
AGR relief could drive new tenancies at Indus Towers
Citi believes that improved visibility on network investments and balance sheet stability at Vodafone Idea should drive new tenancies at Indus Towers. The brokerage also thinks it could reduce the risk of receivable issues seen in the past. Key near-term catalysts for this include successful completion of Vodafone Idea's bank fundraising and further clarity on AGR reassessment, Citi said.
Investment outlook
Citi maintains 'Buy' rating on Indus Towers
Citi has maintained a 'Buy' rating on Indus Towers with a price target of ₹515. Earlier, the brokerage had reiterated Vodafone Idea as a 'High risk buy' while trimming its price target to ₹14 from ₹15. CLSA also maintained an 'Outperform' rating on Vodafone Idea but cut its target price to ₹11 from ₹12.