Stars are aligning! Vodafone Idea share price targets increase after tariff hike

As the much-anticipated telecom tariff hike begins from this week with Reliance Jio belling the cat, analysts say that Vodafone Idea could turn out to be the biggest beneficiary. The retail favourite stock has already rallied around 23% in the last one month and now Citi has upgraded Vodafone Idea from neutral to buy and also increased target price to Rs 23 from Rs 15 saying that the stars are now aligning for the troubled telecom operator.

While retaining high-risk rating, Citi said the target price could rise to Rs 28 in a bull case scenario, contingent on a favourable outcome in the AGR case that could result in a marked reduction in Vodafone Idea's dues.

"They (telcos) have not increased tariffs for about a couple of years in a row now and so that will do a world of good to the balance sheets of everybody. And most importantly to Vodafone Idea. I think the clear beneficiary of all this, it will benefit everybody, but incrementally I think it will be Vodafone Idea," market advisor Chakri Lokapriya said.

Last week, all three private operators – Reliance Jio, Bharti Airtel and Vodafone Idea – announced tariff increases in the range of 11–25% across plans, which ICICI Securities said implies revenue growth potential of 15–17% over the next two-three quarters.

While Jio and Airtel's tariff hike comes into effect from July 3, Vodafone's new tariff will be effective from July 4.

“Vi has been under financial stress, and this tariff hike is likely to provide support in the near term. The company has announced lower hikes for entry-level plans, similar to Airtel; its daily data plans saw an average hike of 17-19% for popular plans. Vi has also guided to higher capex intensity in coming quarters, to enhance quality of 4G service as well as launch 5G,” Emkay Global’s Sabri Hazarika said.

HSBC Securities said the hikes are in line with its estimate of 20% overall but are three months ahead of its forecast. "Thus, we now raise our earnings estimates for Bharti Airtel and Reliance Industries," it said. The global brokerage has raised the target price of Airtel to Rs 1,325 from Rs 1,220 and for RIL the target has gone up marginally from Rs 2,780 to Rs 2,770.

On Vodafone Idea, HSBC said market share losses are likely to continue as its network investment lags those of peers. "Its recent capital raise should help to improve network coverage and capacity, and the pace of its market share losses should slow. However, we retain our Reduce rating given its rich valuation (16.9x FY26e EV/EBITDA). Reflecting the recent equity raise of Rs 240 billion and earlier tariff hikes, we lift our target price to Rs 7 from Rs 4," it said.

While noting that the need for Jio to raise tariffs was equally pressing, given its larger 5G investments and further moderation in RoCEs and free cash flow, Kotak Equities said while the quantum and timing of tariff hikes is in line with estimates, Jio taking the lead on raising tariffs is a sentimental positive for the telecom industry.

Analysts also believe that Jio looks now open for future tariff hikes due to its huge 5G capex amidst limited monetisation opportunities and impending listing of Jio.

"ARPU in India is still one of the lowest at ~USD 2.2/month vs. the global average of USD 8-10/month (USD 6.9/month in China); India’s ARPU to GDP per capita is low at ~1.0% in FY24 vs. +1.5% before FY15. Our calculation suggests the industry requires an ARPU of Rs 300 in the next 3-4 years for a pre-tax RoCE of 12-15%. Hence, we expect industry’s ARPU CAGR of 10-12%: a) 3-4% due to MBB upgrade, post-paid additions and data monetisation; and b) 5-6% due to a regular tariff hike," JM Financial said.

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