Telecom stocks in demand: Voda Idea, Bharti Hexa gain up to 4%; here's why

India's telecom sector is in a multi-year recovery, driven by ARPU improvement, structural data demand, and lower incremental capex, analysts at Elara Capital believe.

Telecom stocks price movement

 

Shares of telecom services companies were in focus, gaining up to 4 per cent on the BSE in Tuesday’s intra-day trade. Vodafone Idea rallied 4 per cent to ₹14.90, while Bharti Hexacom (₹1,478) and Bharti Airtel (₹1,835.85) were up 1 per cent each in intra-day deals. 

At 09:25 AM; these stocks were trading higher by up to 1 per cent, as compared to 0.50 per cent rise in the BSE Sensex. 

In the past one month, Bharti Airtel (up 3.3 per cent), Bharti Hexacom (up 1 per cent) and Vodafone Idea (up 20 per cent) have outperformed the BSE Sensex, which declined 2.8 per cent during the same period.  READ LATEST STOCK MARKET UPDATES LIVE

 

Why are telecom stocks in focus today?

The Bombay High Court struck down the Centre's one-time spectrum charge (OTSC) imposed on Bharti Airtel and Vodafone Idea, ruling that the government lacked the authority to retrospectively alter the financial terms of telecom licences years after they were granted. Note that Department of Telecommunications (DoT) in 2012 had ruled that Telcos holding GSM spectrum beyond 6.2 MHz had to pay a one-time fee, with rule being retrospective for spectrum held from 2008 onwards. 

Airtel faced a total liability of ~₹15,000 to ₹16,500 crore (which included a principal contingent liability of about ₹6,600 crore while Vodafone Idea had an exposure of ~₹7,000 to ₹7,581 crore, ICICI Securities said in a note. The brokerage firm, however, note that the judgement of Supreme Court of India will also be key ahead, where parallel appeals on the OTSC issue are currently pending.  READ | Nifty Outlook: Should you sell on rise or buy dips? Here's what experts say

Elara Capital initiates coverage on telecom with Buy rating on Bharti Airtel, Hexacom

The telecom industry’s evolution from basic voice services to full-scale digitalization is fueling a data consumption boom in India and globally. India is at the forefront of this shift, due to three structural changes: the most affordable tariffs, broad smartphone adoption, and extensive network expansion into the hinterland. Industry consolidation (from 17 operators to four), combined with sticky, high volume data use, sets the stage for a sustained rise in average revenue per user (ARPU), analysts at Elara Capital said in its intial coverage report on the telecom sector. 

In the brokerage's view, India’s telecom sector is in a multi-year recovery, driven by ARPU improvement, structural data demand, and lower incremental capex. This creates a favourable backdrop for earnings upgrade, deleveraging and higher free cashflow conversion. Key levers: tariff trajectory, execution of bundling and enterprise monetization, capex pace (5G densification) and regulatory developments.  

Analysts initiated coverage on Bharti Airtel with a 'Buy' rating for a target price (TP) of ₹2,387 based on 10x FY28E EV/EBITDA. Similarly, they have a 'Buy' rating on Bharti Hexacom for a TP of ₹1,756 based on 14x FY28E EV/EBITDA.  

The brokerage firm also initiated coverage on Indus Towers with an 'Accumulate' rating and a TP of ₹491 based on 15x FY28E P/E. They believe Reliance Jio’s (JPL) enterprise value (EV) to be around ₹12-13 trillion based on 13x FY28E EV/EBITDA. JPL’s EV could be ₹13-14 trillion based on 13x FY28E EV/EBITDA (as considered in SOTP value of Reliance).  ==========================================  Disclaimer: View and outlook shared on the stock belong to the respective brokerages and are not endorsed by Business Standard. Readers discretion is advised.