Vodafone Idea Shoots Up 3% As Brokerage Upgrades Stock To 'Buy'

Global Brokerage UBS upgraded Vodafone Idea as the brokerage expects the various measures taken by the Indian government to prevent a duopoly in the sector to help the troubled telco.

What Happened: UBS upgraded Vodafone Idea to "buy" with a target price of ₹18. The brokerage said the focus will be on relief on government dues.

Another trigger for the telecom sector is that the market expecting a 15-20% price hike for mobile price increase in the next 12-24 months. The brokerage also expects adjusted gross revenue (AGR) reduction relief for the company either from the Supreme Court or through equity conversion by the government.

UBS also believes a moratorium from the government will be unlikely as the government has stated its objective of ensuring three viable private telecoms. 

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The Indian telecom sector is increasingly at the risk of becoming a duopoly as Bharti Airtel and Reliance's Jio have rolled out 5G services and increased their subscriber base while Vodafone Idea still hasn't rolled out its 5G infrastructure yet. 

UBS also points out that Vodafone Idea is the most leveraged to any government relief. The stock is also trading at a similar valuation to its rivals Airtel and Jio, UBS added. If the company gets government reliefs, there will be 70-80% potential upside for Vodafone Idea.

In the March quarter, the telecom saw its net loss increase to ₹7,674 crore from ₹6,418.9 crore in the previous year. Its topline increased marginally to ₹10,606 crore compared to ₹10,531 crore from the previous year.

The average revenue per user (ARPU) gained  to ₹146 from ₹135 in the same quarter from previous year due to changes in entry level plans and subscriber upgrades. 

In a regulatory filing on May 23, Vodafone Idea said that the company is in discussions with various equipment vendors, including Ericsson India, to increase its rollout of 5G services in the country.

Price Action: Shares of Vodafone Idea was trading at ₹14.50, up 3% on Friday’s early morning session. 

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