Can Vi stock see more upside after SC's AGR ruling? Analysts weigh in

Motilal Oswal Financial Services upgraded the stock to a 'Neutral' rating, and upped the target price to ₹10 per share, from ₹6.5 apiece earlier

Analysts remained positive on Vodafone Idea (Vi) stock as they expect the telecom major to have "improved chances of survival" after the top court decided to allow the government to re-examine the adjusted gross revenue (AGR) issue. 

 

Motilal Oswal Financial Services upgraded the Vi stock to a 'Neutral' rating, and upped the target price to ₹10 per share, from ₹6.5 apiece earlier. Analysts at Emkay Financial Services expect the government to grant significant relief on AGR  dues to Vi. 

 

The Supreme Court on Monday allowed the government to reconsider the AGR dues issue with Vodafone Idea. This was done given that the government holds a 49 per cent equity stake in Vi and to prevent any disruption in services for 200 million customers.

 

"With this, the government will now have enough flexibility to chart a plan for Vodafone Idea's long-term sustainability," Emkay said in a note. "However, leverage for the company remains elevated even after excluding AGR dues, and the government will also need to explore measures to reduce spectrum-related debt." 

 

Analysts at Motilal Oswal believe this verdict is a "positive step and expect the GoI to revisit the AGR issue and announce relief measures soon." However, the broker also noted that this potential relief is already factored into Vi's stock price. 

 

While the decision by the Supreme Court is seen as a step toward creating a more competitive telecom market in India, analysts await details on the government’s plans toward resolving Vi’s high-spectrum debt. "Any policy change toward spectrum costs is likely to potentially benefit other telecom operators, though we await more clarity on this," Emkay said.   ALSO READ | Vodafone Idea regains ₹1 trn mcap. Should you buy or hold Vi stock?

Sector-wide implications? 

The potential AGR relief underscores the Government's commitment to maintaining a 3+1 market structure in the Indian telecom sector and could also enable Vodafone Idea’s long-pending debt raise, Motilal Oswal said. "This, in turn, would support the continuation of Vodafone Idea’s ₹50,000-55,000 crore capital expenditure plans and improve sentiment for Indus Towers."

 

The brokerage said that any relief is more likely to be sector-wide rather than limited to Vi. However, further clarity is awaited, as the Supreme Court noted the government’s high stake in Vi as a key factor in allowing a re-examination of the AGR dues, which could exclude telcos such as Bharti Airtel and Hexacom from similar relief, it added. 

 

"If the Government of India were to extend relief to Bharti and Hexacom as well, the resulting cash flow benefit could be substantial,” Motilal Oswal said.  ALSO READ | Breakout alert: Voda Idea stock test 200-WMA on SC AGR relief; next target?

Vi stock history

On Monday, the telecom major's stock rose as much as 9.8 per cent during the day to a 52-week high of ₹10.57 per share. However, the stock was down 0.5 per cent on Tuesday, compared to a 0.22 per cent advance as of 9:20 AM. 

 

Shares of the company snapped a five-session streak of gains. The counter has risen 24.8 per cent this year, compared to a 10.1 per cent advance in the benchmark Nifty 50. Vodafone Idea has a total market capitalisation of ₹1.07 trillion.