Vodafone Idea gets an upgrade, but its not a 'buy' recommendation

Brokerage firm UBS has upgraded telecom service provider Vodafone Idea to "neutral" from its earlier recommendation of "sell" following the recent correction in its stock price.

Shares of Vodafone Idea are down 27% from their recent peak of ₹18.4.

UBS has also increased its price target on Vodafone Idea to ₹13.1 from ₹11.5 earlier but added that it struggles to see further upside from these levels.

Vodafone Idea's funding developments making positive progress has been cited as the key factor behind the upgrade by UBS.

The board of Vodafone Idea on February 27 approved raising funds to the tune of ₹45,000 crore, of which ₹20,000 crore will be raised through a combination of equity or equity-linked instruments. It also said that it remains actively engaged with its lenders for tying up the debt funding, which will follow the equity fundraising.

UBS said that Vodafone Idea's recent announcements seem to indicate that the company is close to securing sizeable funding which could help it accelerate capex, narrow the 4G network gap with peers like Bharti Airtel and Reliance Jio and likely slow or stop its market share loss.

The brokerage is working with a 10% telecom tariff increase in the first quarter of financial year 2025.

"However, with Indian mobile revenue as % of GDP now at the high end of GEMs' average and pricing of entry-level data plans in India among the most expensive, we expect further ARPU increases to be measured," the note said.

UBS is anticipating Vodafone Idea to report a 13% to 15% increase in its Average Revenue Per User (ARPU) in the financial year 2025 and anticipate that growing at a Compounded Annual Growth Rate (CAGR) between 6% to 8% in the subsequent three years.

Shares of Vodafone Idea have given up opening gains and are trading 0.4% lower at ₹13.25.