DoT Reforms Boost Vodafone Idea and Indus Towers: Citi's Bullish View

International brokerage Citi Research has expressed optimism about Vodafone Idea and Indus Towers, citing the recent waiver of bank guarantees by the Department of Telecommunications (DoT) as a game-changing reform for the telecom sector. The waiver is expected to significantly ease financial pressure on Vodafone Idea while boosting investment prospects for both 4G and 5G networks. Citi maintained a bullish ‘buy’ rating on Vodafone Idea with a target price of above current market price, indicating a potential upside of 68%. Additionally, Indus Towers has been placed under a 90-day positive catalyst watch, with an anticipated target price of above current market price.

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Impact on Vodafone Idea

The DoT’s decision to waive bank guarantees for spectrum auctions held prior to the telecom reform package has brought much-needed relief to Vodafone Idea share price. Previously, the telecom operator was obligated to provide guarantees amounting to ₹24,800 crore against each spectrum instalment, 13 months before the payment’s due date. This significant financial burden had hindered VIL’s ability to raise debt funding and support its operational growth.

The waiver is expected to boost Vodafone Idea’s investments in 4G and 5G infrastructure, marking a critical step toward improving its network capabilities and competitiveness. Citi Research emphasized that the elimination of this requirement removes a substantial financial obstacle, potentially aiding the company’s turnaround efforts. Despite its ongoing challenges, Citi’s target price underscores the potential for substantial gains, reflecting approx 68% upside from the recent closing price.

Positive Outlook for Indus Towers

The bank guarantee waiver has also generated a positive ripple effect for Indus Towers, a key partner of Vodafone Idea. Citi Research noted improved visibility for Indus Towers to reinstate dividends by Q3 or Q4 of FY25. The brokerage highlighted that the company’s declining capital expenditure (capex) is enhancing free cash flow generation, creating a favorable environment for long-term growth.

Indus Towers is also expected to benefit from an upcoming increase in tenancies from Vodafone Idea starting in Q3, with a possible inflection point in tenancy ratios by Q4. This development aligns with the company’s broader strategy to optimize its operations and deliver value to shareholders. Citi’s 90-day positive catalyst watch on Indus Towers, along with a target price of above current market price, reflects confidence in the firm’s near-term and medium-term performance.

Conclusion

The DoT’s bank guarantee waiver is a transformative move that alleviates financial stress for Vodafone Idea while supporting the growth of Indus Towers. For Vodafone Idea, this reform strengthens its ability to invest in next-generation technologies and addresses a critical bottleneck in its debt funding efforts. Indus Towers, on the other hand, stands to gain from improved free cash flow and an increase in tenancies, reinforcing its growth trajectory. Citi’s bullish stance on both companies underscores the potential for significant returns in the evolving telecom landscape.