Vodafone Idea stock doubles in just one month, CLSA sees more upside

Vodafone Idea’s Arpu Rs 109 is nearly 20 per cent lower than Airtel.
Shares of Vodafone Idea have more than doubled in just one month.

The stock on Thursday ended at Rs 8.9, up 2.15 since May 6. While the Street has been largely bullish on the telecom sector, high debt and uncertainty over payment of adjusted gross revenue (AGR) dues had kept a leash on Vodafone Idea’s stock price even as rival Bharti Airtel continued to charge ahead.

Market players said reports that Google was eyeing stake in Vodafone Idea had given an impetus to its stock price. Influential brokerage CLSA on Wednesday issued a ‘buy’ rating on the stock with a 12-month price target of Rs 12.

Vodafone Idea has more than doubled in three months but we see further upside from average revenue per user (Arpu) growth, likely AGR resolution and potential floor tariffs. With the return of growth led by tariff hikes, Vodafone Idea promoters may assess incremental funding, irrespective of AGR cases outcome. With the stock’s risk reward still favourable, we reiterate ‘buy’ and maintain Rs 12 target based on 8 times enterprise value (EV)/Ebitda one-year forward Ebitda of FY22,”CLSA analyst Deepti Chaturvedi wrote in a note.

Vodafone Idea’s Arpu Rs 109 is nearly 20 per cent lower than Airtel. CLSA expects the company’s Arpu to grow by 30 per cent by FY22 underpinned by tariff hikes.

The company has also seen significant erosion in its subscriber base. CLSA expects the loss to stem. “Since the merger, Vodafone Idea has lost 118 million subscribers to 304 million but loss should slow and we forecast FY20-22 incremental loss of 20 million, lower than the loss in the past 12 months. Further, Vodafone Idea has safeguarded its 23 million post-paid subscriber base, which is 46 per cent higher than Airtel’s base and far ahead of Reliance Jio,” CLSA note said.

The verdict in the AGR court case is in standstill because of the Covid-19 pandemic. According to the company’s self-assessment, the dues at about Rs 21,500 crore. “Vodafone Idea has paid $0.9 billion towards AGR dues and Vodafone Plc has committed $1.1 billion towards AGR payments. The industry awaits a final verdict and likely approval of staggered payments,” the CLSA note said.

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