Stock to buy: While Vodafone Idea shares wiped off nearly 50 per cent of investor wealth in 2024, it did not deter global brokerage Citi from upgrading the stock. Citi has upgraded the telecom stock to ‘buy’ with a target price of ₹13, implying an upside potential of 64 per cent from its last closing price.
The move comes after the Department of Telecommunications approved a significant bank guarantee waiver for spectrum payments, offering a much-needed lifeline to the debt-laden telecom operator.
Bank Guarantee Waiver: A Game-Changer for Vodafone Idea?
The government has approved the waiver of bank guarantees for spectrum acquired in auctions held between 2012 and 2021, a decision Citi described as a “major relief” for Vodafone Idea. The company had previously struggled to furnish bank guarantees amounting to ₹24,800 crore for spectrum dues, which had been a significant hurdle in securing debt funding from banks.
Citi noted that this waiver addresses a critical roadblock for Vodafone Idea, improving its funding prospects and alleviating financial pressures. The decision also reflects the government’s continued supportive stance towards the telecom sector, aiming to enable operators to focus on the expansion of 4G and 5G networks in India.
Impact on Indus Towers and Broader Telecom Sector
The waiver also benefits Indus Towers, where Citi has maintained a “positive catalyst watch.” Indus Towers’ dividend yield of over 6 per cent was highlighted as an undervalued aspect of the stock, with improved payment visibility from Vodafone Idea further enhancing its appeal.
While the waiver applies to spectrum auctions held between 2012 and 2021, Vodafone Idea still faces a one-time shortfall related to the 2015 auction. Discussions are ongoing to determine the final amount owed, but the recent waiver eases a significant portion of the financial burden.
In an exchange filing, Vodafone Idea stated, “This step of bank guarantee waiver is a clear indication of the government’s continued support to the telecom industry and will ensure the exposure of the banking system is utilised by telecom operators towards the further proliferation of 4G and 5G networks in India.”
Stock Performance in 2024
Vodafone Idea experienced a sharp decline in 2024, losing 55 per cent of its value over the year. The stock delivered negative returns in nine out of 12 months, including a 5 per cent decline in December following a modest 3 per cent gain in November.
At ₹7.94, the stock remains 58 per cent below its 52-week high of ₹19.15, recorded in June 2024. However, it has recovered over 20 per cent from its 52-week low of ₹6.60, hit in November 2024.
Outlook and Key Considerations
Citi emphasised that the bank guarantee waiver is a critical milestone for Vodafone Idea but cautioned that progress on securing debt funding remains a pivotal factor to watch. The resolution of funding challenges will have broader implications, not only for Vodafone Idea but also for stakeholders such as Indus Towers.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
