1 day ago
Shares of debt-ridden telecom operator Vodafone Idea Ltd. have opened with gains of 10% on Tuesday, April 1, after brokerage firm Citi opened a positive catalyst watch for a 90-day period on the stock, along with Indus Towers Ltd.
In developments over the long weekend, the government will now become the largest shareholder of Vodafone Idea after it will convert its spectrum dues into equity. The equity conversion of ₹36,950 crore, will take the government's total shareholding in Vodafone Idea to 48.99%.
Citi has called this move a material development that will have significant positive implications. The brokerage also said that this is a major display of support by the government in a very timely manner.
The government's move should provide significant relief to Vodafone Idea's cash flow in the next three years and help it complete its bank debt raise, the Citi note said. Vodafone Idea has raised over ₹20,000 crore through its largest Follow-on Public Offer (FPO) last year and infusion of funds by promoters.
"Meanwhile, we also believe it will lift concerns on tariff companies like Indus Towers," Citi said, adding that it has opened a 90-day positive catalyst watch.
Citi has a price target of ₹12 on Vodafone Idea, which implies a potential upside of 77% from Friday's closing levels.
The brokerage has also opened a 90-day positive catalyst watch on Indus Towers, saying that it expects the resumption of dividend payouts and expects a ₹18 per share payout by April.
Citi's positive stance on Indus Towers is also based on firm progress by Vodafone Idea on the completion of its debt raise.
"On our FY25-27E forecasts, we expect Indus Towers to deliver a core EBITDA CAGR of 10% excluding writebacks, underpinned by a tenancy CAGR of 8%," Citi said.
Indus Towers' implied dividend yield of 5% to 7% presents a compelling investment opportunity, according to Citi's note.
Citi has a price target of ₹470 on Indus Towers, which implies a potential upside of 41% from Friday's closing levels.
Macquarie believes that with underlying free cash flow generation inadequate to organically pay back obligations as per the timelines, there will be significant additional equity dilution risks for minority shareholders for Vodafone Idea.
For Indus Towers, the brokerage said that it does not see an improved tenancy outlook despite its key tenant Vodafone Idea getting a lifeline.
Macquarie has a "neutral" rating on Vodafone Idea with a price target of ₹7.
CLSA has also upgraded shares of Vodafone Idea to "outperform" and raised its price target to ₹10.
The brokerage said that following the tariff hikes, Vodafone Idea's cash generation can fund its capex, while conversion of spectrum dues into equity takes care of repayments over the forecast period.
Out of the 21 analysts that now have coverage on Vodafone Idea, 11 of them still have a "sell" rating on the stock, while five analysts each have a "buy" and "sell" rating.
Among the 24 analysts covering Indus Towers, 13 of them have a "buy" rating on the stock, six of them have a "hold" rating, while five have a "sell" rating.
Shares of Vodafone Idea are locked in an upper circuit of 10% at ₹7.48, while those of Indus Towers are trading 6.2% higher at ₹355.
Also Read: Vodafone Idea Share Price: What lies ahead for its 58 lakh small shareholders
