Why Vodafone Idea shares rallied 10% today; stock up 34% in one month

Vodafone Idea Ltd shares soared 10 per cent in Monday's trade after a Bloomberg report quoted sources as saying that the Vodafone Group Plc, which held 19 per cent stake in Vodafone Idea, was working on a proposal to shore up capital t the Indian unit.  The report suggested Vodafone Group PLC was mulling transferring part of its shareholding, to be held in treasury, in lieu of Vodafone injecting more cash into the Indian business. Vodafone Idea may sell the said shares to pay government dues at later stage and incur capex to drive growth, the report suggested.

The move is expected to strengthen Vodafone Idea’s balance sheet and support its ongoing debt-raising efforts. Following the Bloomberg report, Vodafone Idea shares soared 9.68 per cent to hit a high of Rs 12.34 apiece, taking its one-month rise to 34 per cent. 
Vodafone Idea shares have been in focus recently after a few brokerages turned positive on the telecom operator following the reassessment of its Adjusted Gross Revenue (AGR) dues, which were reduced to Rs 64,046 crore from Rs 87,695 crore. Analysts said the AGR relief could improve the company’s fundraising prospects, while adding that a tariff hike remained the key catalyst for the telecom stock.

CLSA in a note on May 3 said even as Vodafone Idea's reassessed AGR dues are lower by only 27 per cent, this combined with the payment moratorium is definitive long-term relief. This, it said, will boost the prospects of management’s planned fundraising for Rs 45,000 crore investment plan.

"We retain O-PF and our target price of Rs 11, as we roll forward but use a higher 11 times EV/ Ebitda (previously 10x) given AGR relief," the foreign brokerage said.

Citi has called Vodafone Idea Ltd a high-risk buy idea with a target price of Rs 14. This brokerage said the chapter of regulatory uncertainty is now largely behind Vodafone Idea and that the telecom operator is better positioned to close its pending Rs 25,000 crore bank debt raise.