Synopsis : Telecom stocks are back in focus after a favorable Bombay High Court ruling on one-time spectrum charges. While both Bharti Airtel and Vodafone Idea stand to benefit, Nomura sees a clearer investment case in Airtel, maintaining a ‘Buy’ rating with 25% upside potential, while retaining a ‘Neutral’ stance on Vodafone Idea.
Telecom Stocks Gain Relief After Bombay High Court Verdict
The telecom sector received a significant boost after the Bombay High Court set aside the Department of Telecommunications' (DoT) one-time spectrum charge demands on Bharti Airtel and Vodafone Idea.
According to global brokerage Nomura, the ruling is positive for both telecom operators as it removes a long-standing regulatory overhang. However, the brokerage believes the financial and investment implications differ considerably between the two companies.
Importantly, Nomura cautioned that the ruling can still be challenged in the Supreme Court, which means the matter is not completely settled.
Nomura Maintains ‘Buy’ on Bharti Airtel
Nomura has reiterated its ‘Buy’ rating on Bharti Airtel with a target price of Rs 2,220 per share, indicating an upside potential of approximately 25% from current levels.
According to Bharti Airtel's FY25 annual report, the company faced an original spectrum charge demand of Rs 8,410 crore.
Against this liability, Airtel has already recognized:
- Rs 1,810 crore towards principal liability
- Rs 9,950 crore towards accumulated interest
This results in a total provision of approximately Rs 11,760 crore on its consolidated books.
The remaining principal amount of Rs 6,610 crore has been disclosed as a contingent liability and has not been provided for.
Nomura believes Airtel could potentially reverse the entire Rs 11,760 crore provision if the legal matter is resolved completely in its favor.
However, since this would largely be a non-cash accounting adjustment, the brokerage does not expect a major impact on Airtel's operations, cash generation, or valuation.
The brokerage highlighted that Airtel currently trades at around 8.3x FY28 EV/EBITDA, which it considers attractive given the company's projected 13% EBITDA and operating free cash flow CAGR.
What Could Drive Airtel Higher?
Nomura remains optimistic about Airtel due to:
- Strong market leadership
- Healthy cash generation
- Consistent subscriber growth
- Future tariff hike potential
- Expanding data consumption trends
However, the brokerage noted that intensified competition or delays in industry-wide tariff hikes could affect future earnings growth and valuation upside.
Nomura Remains ‘Neutral’ on Vodafone Idea
Unlike Airtel, Nomura has maintained a ‘Neutral’ rating on Vodafone Idea with a target price of Rs 12.60 per share, suggesting limited upside from current levels.
Vodafone Idea has already recognized approximately Rs 7,580 crore related to the one-time spectrum charge issue. Additionally, the company carries a contingent liability of around Rs 3,350 crore.
The situation is more complex because the recent Bombay High Court ruling only provides relief for the spectrum liabilities related to the erstwhile Idea business.
The portion related to the former Vodafone entity remains under consideration before the Supreme Court.
Why Relief Is More Important for Vodafone Idea
Nomura believes the potential reversal of Rs 7,580 crore is relatively more significant for Vodafone Idea compared to Airtel because of the company's financial position.
Vodafone Idea continues to face:
- Negative net worth
- Weak cash flows
- Large AGR liabilities
- Significant spectrum payment obligations
Despite the spectrum charge relief, Nomura believes the overall financial stress remains substantial.
The brokerage emphasized that the one-time spectrum charge issue represents only a small portion of Vodafone Idea’s total liabilities.
Key Triggers for Vodafone Idea Going Forward
According to Nomura, Vodafone Idea's future performance will largely depend on:
- Successful debt fundraising
- Additional government support
- Industry-wide tariff increases
- Subscriber additions and retention
- Improvement in network quality and coverage
Without meaningful progress on these fronts, the brokerage remains cautious despite the legal relief.
Investor Takeaway
While the Bombay High Court ruling removes a legacy regulatory burden for both telecom operators, Nomura sees a stronger investment case in Bharti Airtel due to its healthier balance sheet, stronger cash flows, and long-term growth visibility.
For Vodafone Idea, the relief is welcome but insufficient to fully address the company’s broader financial challenges.
As a result, Nomura continues to favor Bharti Airtel as its preferred telecom sector pick while maintaining a wait-and-watch approach on Vodafone Idea.
Disclaimer : This article is for informational purposes only and should not be considered investment advice. Investors should conduct their own research and consult a SEBI-registered financial advisor before making any investment decisions.
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