Ambit Capital has upgraded its ratings for Vodafone Idea (VI) and Indus Towers to BUY, citing several key factors that bolster their investment cases.
Vodafone Idea
Government support
Ambit Capital expects ongoing support from the Indian government, including converting deferred spectrum and adjusted gross revenue (AGR) dues into equity by FY26/27. This strategic move is anticipated to help VI survive and invest in essential network upgrades.
Successful fund raise
VI’s recent ₹22,500 crore equity raise reflects strong investor confidence. This capital infusion is crucial for the company’s 4G/5G network expansion, positioning it better in the competitive telecom market.
Tariff hike expectations
Ambit forecasts a 20 per cent tariff hike in September 2024, followed by biennial increases of 12 per cent. These tariff adjustments are expected to significantly enhance VI’s financial health, enabling it to compete more effectively and sustain its operations.
Indus Towers
VI’s network expansion
Vodafone Idea’s planned network expansion is projected to directly benefit Indus Towers. As VI leverages Indus’s existing infrastructure, Indus Towers is likely to see increased tenancy and revenue.
Airtel’s ownership
With Airtel becoming the sole promoter of Indus Towers, the company is expected to exhibit greater financial discipline. This shift reduces leniency towards delayed payments from VI, ensuring better cash flow management for Indus Towers.
Overall outlook
Ambit Capital’s analysis underscores the potential revival of Vodafone Idea through government support and strategic funding. This revival is set to drive growth for both VI and Indus Towers, making them attractive investment opportunities. The expected financial performance and operational efficiency improvements further reinforce Ambit’s positive outlook on these stocks.