'Not a buy' but BofA ups Vodafone Idea share price target, says telco best placed to play tariff game

‘Not a buy’ but BofA ups Vodafone Idea share price target, says telco best placed to play tariff game

BofA Securities has upgraded Vodafone Idea’s rating  as it believes it offers highest leverage for tariff hike as pure-play telecom operator.

BofA believes a 5 per cent average revenue per user (ARPU) jump leads to 12 per cent earnings per share (EPS) increase Vodafone Idea.

Vodafone Idea is seen to improve its 4G network coverage on the back of its recent fund raise.  BofA Securities said it should help arrest market share decline and make it competitively better placed.

That said: “VIL is not a Buy as we await further clarity on funding position improvement post FY26 as the spectrum moratorium ends. Our FY25/26 EPS moves to Rs (2.7 oer share)/(1.5 per share) as we factor recent capital raise. We reduce our WACC to 10.1 per cent from 10.6 per cent and roll forward our DCF. Our PO increases by to Rs 14.50 from Rs 9.40 earlier,” BofA said in a May 2 note.

BofA has also upped it target for Bharti Airtel Ltd and Reliance Industries Ltd and believes Indus Towers to be an indirect beneficiary of tariff hikes.

“We also increase Bharti & Jio Ebitda to factor higher hikes. Our Bharti EPS rises by 5-6 per cent and but RIL EPS reduces by 2-3 per cent (due to higher D&A). We think Bharti/RIL would likely use improving cash-flows to invest/grow their fibre broadband, enterprise, data centre and digital biz. Most of these are high margin sticky businesses, helping these companies diversify cash-flows from cellular biz and add new growth drivers,” it said.

The brokerage has a price target of Rs 1,430 on Bharti Airtel against Rs 1,300. It suggested a target price of Rs 3,340 on RIL from Rs 3,250 earlier.

On Indus Towers, BofA Securities said Vodafone Idea’s improving cashflows should aid business in terms of sustained business and better multiple. It also factored in new 4G/5G tenancies from Vodafone Idea on back of its recent fund-raise.

“As a result, our FY25-26 EPS moves up by 2-4 per cent and outer years’ EPS increases as well. We also reduce our WACC to 10.3 per cent from 10.8 per cent. Our PO moves to Rs 410. Indus Towers trades at FY25E Ebitda of 7.2 times vs average global multiple of 12 times,” it said.

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