Vodafone Idea, Bharti Airtel shares surged on Wednesday amid reports that the telecom department is likely to return bank guarantees to the telcos even for the matters currently under sub judice.
The Department of Telecommunications (DoT) may inform the Supreme Court (SC) that it will return bank guarantees (BG) of the telecom companies, an Economic Times report said. A bank guarantee ensures if the debtor fails to settle a debt, the bank will cover it.
According to the report, DoT will return these BGs in addition to the guarantees telecoms had furnished to cover spectrum payments. The spectrum payments have been deferred for four years under the new relief package for the industry. The government will ask the telecoms to furnish fresh bank guarantees a year before the deferred period is up, the report said.
Airtel and Vodafone Idea reacted to the news surging over 3 and 5 percent, respectively. At 10 am, Airtel shares were trading at Rs 778 on NSE, up 2.5 percent. The shares touched an intraday high of Rs 780. Vodafone Idea was up 3 percent to Rs 10.95, after rising as high ad Rs 11.10.
Vodafone Idea
Brokerage house CLSA has an underperform call on Vodafone Idea, with a target at Rs 11 per share. An underperform call means shares are expected to be slightly worse than the average market return.
It said the latest tariff hikes can boost the telecom's revenue by 10 percent. And the entry tariff hike can further boost the revenue by 7 percent. Vodafone Idea announced tariff hikes Tuesday by 25 percent, in line with what Bharti Airtel had announced Monday.
Analysts said these tariff hikes were overdue for repairing the average revenue per user (ARPU) of the cash-strapped telecom companies.
The telecom industry is laden with debt and dealing with mounting losses from the past two years as the telecom operators had to purchase expensive spectrum and payout hefty regulatory dues. The government had offered a lifeline to the sector when it released the telecom relief package in September.
In the relief package, the government announced a temporary prohibition on the payment of AGR dues. AGR or the aggregated gross revenue is a revenue-sharing mechanism between the telecom operators and the government. The companies are expected to pay a percentage of their AGR to the government.
However, for a long time, the definition of AGR was contested. While the government wanted to include non-telecom revenue in the AGR, telecoms were against it. In the relief package, the government removed non-telecom revenue from AGR and deferred the payments of AGR dues by four years.
The shares of Vodafone Idea have surged over 5 percent in the past month even as Sensex plunged over 3 percent.
Bharti Airtel
Meanwhile, Sushil Kedia, the founder of Kedianomics continues to remain bullish on the sector. "They (telecom stocks) did not come down at all in this market correction. So we will continue to ride them with trailing stops," he said.
Mehraboon Irani, a market expert shared similar views. He is "very positive" on the telecom story in India. However, he said buying Bharti Airtel as a trading bet is not a good idea. But he recommended holding if investors want a proxy in the telecom sector. He also predicted the stock to move higher from its current levels.
"They have taken care of the liquidity problem with the recent rights issue. The tariff hike also was definitely a welcome move and should definitely help the company as far as the incremental revenue to EBITDA goes. So I think all said and done, it is a big positive for Airtel," he added.
Mitessh Thakkar, a market expert, has a buy rating on Airtel with a stop loss of Rs 749 and a target of Rs 780.
(Edited by : Ajay Vaishnav)
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