BofA hikes target prices of Vodafone Idea, 3 other telecom stocks on tariff hike expectations

“We think Bharti/RIL would likely use improving cash-flows to invest/grow their fiber broadband, enterprise, data center, and digital biz. Most of these are high margin sticky businesses, helping these companies diversify cash-flows from cellular biz and add new growth drivers,” said the report by BofA.

Meanwhile, Indus Towers has been priced 17% above, at a target of Rs 410, up from Rs 335 as the brokerage firm views it as an indirect beneficiary of the tariff hikes as VIL’s improving cash flows should aid business in terms of sustained business and better multiple.

The Bank of America estimates that the magnitude of the expected tariff hike is likely to be higher at 20-25% vs an earlier expectation of 10-15%, however, improved cash-flows on the back of hikes can be utilized by telcos to grow high margin fiber broadband and enterprise/data-center offerings.

In the last 5-6 years, only two tariff hikes have been witnessed despite expectations of tariff hikes every year. However, going ahead, BofA is more optimistic about another round of tariff hikes within 12 months as the companies are looking to monetize 5G & improve cash flows and competition stabilizing with all telcos being well funded, said Sachin Salgaonkar, analyst at Bank of America.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)