Vodafone Idea, shares may rally 70%
Following the government’s approval of a significant bank guarantee waiver for spectrum payments, Vodafone Idea received a much-needed lifeline. In response, global brokerage firm Citi assigned the debt-laden telecom operator a buy rating with a target price of Rs 13 per share, indicating a potential 70% upside from current levels.
The government’s decision to waive the requirement for bank guarantees on spectrum acquired in auctions from 2012 to 2021 has provided a crucial boost to Vodafone Idea, easing the financial pressure on the struggling telecom giant, as noted by Citi. Prior to this move, Idea(VI) was burdened with the need to submit bank guarantees worth nearly Rs 24,800 crore for spectrum dues, hindering its ability to secure debt funding.
Citi highlighted that this waiver addresses a critical roadblock for Vodafone Idea, opening up improved funding prospects. The waiver also benefits Indus Towers, with Citi maintaining a positive catalyst watch. The brokerage firm emphasized Indus Towers’ over 6% dividend yield as an undervalued aspect of its appeal, now further strengthened by improved visibility on payments from Vodafone Idea.
The Department of Telecommunications (DoT) stated that the waiver applies to spectrum auctions held in 2012, 2014, 2016, and 2021, subject to specific conditions. However, discussions are ongoing to determine the final amount of a one-time shortfall related to the 2015 auction that Vodafone Idea still faces.
Vodafone Idea expressed that the bank guarantee waiver is a clear indication of the government’s continued support for the telecom industry. This move will ensure that the banking system’s exposure is utilized by telecom operators to further expand 4G and 5G networks in India, as stated in an exchange filing.
While shares of Vodafone Idea rose 3.75% on Monday following the news, the stock has seen a decline of nearly 55% over the past year. On Tuesday, Vodafone Idea were trading 1.3% lower in tandem with broader market moves.
Citi cautioned that while the bank guarantee waiver is a major relief, progress on Vodafone Idea’s debt funding remains a key factor to watch, with broader implications for the company and Indus Towers alike.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.