UBS has adopted a cautious approach across the Indian telecom sector, downgrading Indus Towers to 'sell' from 'neutral' and cutting its price target to ₹395 from ₹495. The brokerage warns that market consensus regarding a mobile tariff hike in FY27 may be overly optimistic, particularly as sector revenue growth has shown signs of slowing, recording approximately 8% year-on-year growth in Q4 FY26. UBS cites a challenging macroeconomic environment and persistent inflationary pressures as key factors behind their cautious stance. The brokerage has also cut its mobile revenue estimates for Bharti Airtel by 2%-4% and trimmed its price target to ₹1,800 from ₹2,030, making it the lowest price target on the street for the telecom service provider.
The Bombay High Court on Monday set aside the Centre's decision to levy a one-time spectrum charge retrospectively on telecom operators for spectrum held beyond 6.2 MHz between 2008 and 2012, providing major relief to Bharti Airtel and Vodafone Idea. According to The Hindu BusinessLine, the ruling is expected to provide relief of over ₹20,000 crore to the telecom companies, representing a significant financial boost for both operators who have been battling financial pressures in the competitive market. A division bench comprising Justices Manish Pitale and Shreeram Shirsat quashed the government's decision in 2012 to impose the one-time spectrum charge (OTSC) and has directed the Centre to return the bank guarantees submitted by both companies. The ruling stated that the Centre has failed to justify any authority in levying the charges and altering the financial terms of the telecom licences as an afterthought, bringing closure to a 13-year legal dispute involving telecom operators and the government.
Telecom stocks showed varied performance on Tuesday, with Vodafone Idea gaining 1.7% to ₹14.64 while Bharti Airtel declined 0.2% to ₹1,809.6. Indus Towers was trading 0.4% lower at ₹424.4. According to CNBC TV18, the mixed performance reflects different brokerage outlooks and sector-specific challenges. Vodafone Idea shares rose as much as 3% to ₹14.85 on the NSE following the Bombay High Court's landmark ruling, while Bharti Airtel gained over 1% to ₹1,837 in early trade before erasing gains. The stock performance reflects growing investor confidence in the legal victory and its potential impact on the companies' financial positions, with Vodafone Idea having surged 20% in the past month significantly outperforming the BSE Sensex which declined 2.8% during the same period.
The Bombay High Court's ruling provides a combined relief of around ₹20,000 crore to the two telecom operators, with Vodafone Idea securing ₹11,000 crore relief and Bharti Airtel receiving ₹9,000 crore relief. As per Business Standard, ICICI Securities noted that Airtel faced a total liability of ₹15,000 to ₹16,500 crore (which included a principal contingent liability of about ₹6,600 crore), while Vodafone Idea had an exposure of ₹7,000 to ₹7,581 crore. However, the brokerage firm emphasized that the judgement of Supreme Court of India will also be key ahead, where parallel appeals on the OTSC issue are currently pending. Elara Capital has initiated coverage on telecom stocks with a 'Buy' rating on Bharti Airtel for a target price of ₹2,387 based on 10x FY28E EV/EBITDA, and a 'Buy' rating on Bharti Hexacom for a target price of ₹1,756 based on 14x FY28E EV/EBITDA.
The telecom sector is experiencing a multi-year recovery driven by ARPU improvement, structural data demand, and lower incremental capex, according to Elara Capital. The brokerage firm believes that India's telecom sector is in a multi-year recovery, with the industry's evolution from basic voice services to full-scale digitalization fueling a data consumption boom. India is at the forefront of this shift due to three structural changes: the most affordable tariffs, broad smartphone adoption, and extensive network expansion into the hinterland. Industry consolidation from 17 operators to four, combined with sticky, high volume data use, sets the stage for a sustained rise in average revenue per user (ARPU). This creates a favourable backdrop for earnings upgrade, deleveraging and higher free cashflow conversion, with key levers including tariff trajectory, execution of bundling and enterprise monetization, capex pace (5G densification) and regulatory developments.
