Telecom stocks Bharti Airtel and Vodafone Idea are gaining focus after the Bombay High Court set aside the Telecom Department's one-time spectrum charge demands on both operators. According to reports from The Financial Express, Nomura views this move as materially positive for both companies, though they expect more pronounced financial significance for Vodafone Idea. The international brokerage house has maintained a 'Buy' rating on Airtel with a target price of ₹2,220 per share, implying a 25% upside from current levels. However, Nomura has maintained a 'Neutral' rating on Vodafone Idea with a target price of ₹12.60 per share, indicating no near-term upside potential for the shares.
As reported by The Financial Express, Bharti Airtel has already provided for a portion of the principal (₹1,810 crore) plus accumulated interest (₹9,950 crore) for a total provision of roughly ₹11,760 crore on consolidated accounts. The remaining principal of ₹6,610 crore is carried as a contingent liability and has not been provided for. Nomura believes there could be a potential writeback of ₹11,760 crore for Bharti Airtel. Since this is a non-cash accounting adjustment, the Japanese brokerage house considers this a mildly positive outcome with no meaningful impact on financials or share price. According to Nomura's estimates, the stock is trading at 8.3x FY28 EV/EBITDA estimates, which they consider attractive for a business with 13% EBITDA/operating FCF CAGRs.
According to The Financial Express, Vodafone Idea has recognised ₹7,580 crore against the matter and carries a contingent liability of ₹3,350 crore. However, the situation is complicated as the provisioned amount includes one-time spectrum charges pertaining to both former Idea and Vodafone before the merger. The judgment on June 8 provides relief only to the erstwhile Idea's portion of one-time spectrum charges liability, while the former Vodafone's liability hearing is currently pending in the Supreme Court. Nomura sees a potential reversal of ₹7,580 crore for Vodafone Idea as more meaningful in relative terms given the company's negative net worth and cash flow challenges. However, Nomura pointed out that the one-time spectrum charge relief is a small part of Vodafone Idea's total liabilities, which are dominated by large AGR and spectrum liabilities.
As reported by The Financial Express, Nomura believes higher-than-expected competitive intensity, leading to delays in tariff hikes or lower-than-anticipated tariff hikes, poses a key risk to upside estimates for Bharti Airtel. For Vodafone Idea, successful raising of debt capital and industry tariff hikes, along with meaningful subscriber gains, are seen as key triggers going forward. The brokerage house highlighted that while the Bombay High Court ruling removes a long-standing legacy overhang for both operators, it is a High Court decision that can be appealed in the Supreme Court. Nomura does not expect "provision reversals to be booked immediately, and we believe management might want to ascertain the likelihood of a final favourable outcome."
