Airtel and Vodafone Idea
There is good news for investors investing in Bharti Airtel and Vodafone Idea. In fact, recently the Bombay High Court has canceled the demands of the Department of Telecom (DoT) related to One-Time Spectrum Charge (OTSC). This has brought great relief to telecom companies Bharatiya Airtel and Vodafone Idea. Brokerage firm Nomura believes that this decision is positive for both the companies and the shares of both the companies may see a rise in the coming days. Whereas brokerage firm Nomura has maintained Buy rating on Airtel and Neutral rating on Vodafone Idea.
Why is Nomura bullish on Airtel?
Nomura has given a target price of Rs 2,220 for Bharti Airtel. This shows a potential gain of about 25% from current levels. According to the company’s FY25 annual report, Airtel has made a provision of Rs 1,810 crore for the principal amount and Rs 9,950 crore for interest on it, out of the original demand of Rs 8,410 crore. That means a total provision of approximately Rs 11,760 crore has already been made.
Nomura believes that if the final decision comes in favor of the company, then Airtel can get a possible write-back of up to Rs 11,760 crore. Although this will be just an accounting adjustment, it will not have any major impact on the cash flow or financial position of the company. The brokerage says that Airtel’s business is strong, the company is continuously generating good cash flow and its valuation also looks attractive.
Relief to Vodafone Idea, but challenges remain
Nomura has maintained the target price of Rs 12.60 and Neutral rating for Vodafone Idea. This means that there is no expectation of much rise in the stock in the near future. The company has made a provision of Rs 7,580 crore in this matter and a contingent liability of Rs 3,350 crore is also recorded.
However there is a major complication here. The High Court decision applies only to the one-time spectrum charge related to the old Idea business. The case related to the old Vodafone business is still pending in the Supreme Court. Nomura believes that a possible reversal of Rs 7,580 crore could be significant for Vodafone Idea as the company is already struggling with problems like heavy debt, negative net worth and weak cash flow.
What will you keep an eye on next?
According to experts, the biggest triggers for Vodafone will be debt raising, tariff increase and improvement in customer base. The biggest risk for Airtel is that if competition increases in the telecom sector and there is a delay in tariff increase, then the estimated earnings may be affected.
What is the message for investors?
Nomura says that the decision of the Bombay High Court is a relief for both the companies, but it is not the final decision yet. This order can be challenged in the Supreme Court. Therefore, investors should also keep an eye on the further legal process.
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