The Vodafone Idea share price continues to remain in focus after the Supreme Court breather. The share price of the company drop 4% in intraday trade.
The Apex Court permitted the Government to re-examine the AGR verdict, aiming to prevent any disruption to services for 200 million Vi customers. Motilal Oswal is baking in a partial AGR relief and upgraded the stock to Neutral from Sell. They have raised the target price to Rs 10/share from Rs 6.50 per share earlier. The share price is hovering around these levels after the sharp intra-day surge yesterday (October 27).
Motilal Oswal believes this verdict is a positive step and expects the Govt to revisit the AGR matter and announce relief measures soon. However, the domestic brokerage house highlighted that “Vodafone Idea’s revival still requires additional relief measures, such as tariff hikes and a reduction in the competitive intensity (especially on customer acquisition costs)” and pointed out that none of which are within the company’s control. As a result, “this prevents us from turning more constructive at this stage,” Motilal Oswal added.
Motilal Oswal on Vodafone Idea: Why the SC verdict is positive for Vi and Indus Towers?
According to Motilal Oswal, this verdict by the Supreme Court is “a material positive as it could lead to a significant reduction in its AGR dues (Rs 3.60/share boost in case of 50% waiver), though we believe a part of the relief is already factored into Vi’s CMP”
The Vodafone Idea share price is up 35% since Vi’s latest petition in September this year. Apart from a potential reduction in the AGR liability, they believe that the Govt;s commitment to the 3+1 market structure “could enable the successful completion of Vi’s long-pending debt raise and, thereby, ensure improved competitiveness.”
They believe that the verdict is sentimentally positive for Indus Towers too as it improves visibility on the continuation of Vodafone Idea’s capex plans, though it is unlikely to drive any material earnings upgrades.
Motilal Oswal on Vodafone Idea: Impact of AGR dues
Overall, the AGR dues account for Rs 7/share for Vodafone Idea as per the estimates by Motilal Oswal. Based on the company’s past submissions, the brokerage house believe that “there could be a demand for
-Rs 6,000 crore reduction in the base amount
-Complete waiver of penalties and interest on penalties, and
-Partial waiver of the interest component.”
On the basis of these estimates, Motilal Oswal calculated that a 50% waiver of current AGR outstandings would translate to “Rs 3.60/share.” They added that “we note that since Vi’s recent petition to the SC, the stock has risen by Rs 2.6/share (or 35%) and already bakes in relief on AGR dues to some extent.”
However, “a tangible relief on AGR dues should also provide confidence to lenders on the Govt’s commitment to a 3+1 market structure in the Indian telecom industry,” Motilal Oswal added.
Motilal Oswal’s top telecom picks
However, Motilal Oswal continues to prefer Bharti Airtel and Reliance Jio in the telecom space and remains Neutral on Indus Tower and Bharti Hexacom.