Stock Of The Day: Vodafone Idea's 74% Upside Bet By Citi Can Reverse 2024 Rout

India's private telecom operator Vodafone India Ltd. can reverse 2024 losses if the 74% upside forecast by Citi Research comes into play after it received the much-needed bank guarantee waiver.

Shares of the least profitable private telecom player plunged about 65% from its peak in July after India's top court rejected a plea seeking re-computation of average gross revenue by the Department of Telecommunication.

This was followed by target price cuts by various analysts which pulled the stock down to a 52-week low of Rs 6.6 per share on Nov. 22. From the lowest level this year, the shares have rallied 15%, with Citi Research forecasting yet another significant rally.

The stock has tumbled nearly 51% in 2024 and is currently trading above the 14-day simple moving average. However, the stock currently tests the support of a 21-day exponential moving average at the Rs 7.6 level and a close below this could switch momentum back to the downside.

The telecom operator's stock will find immediate resistance at Rs 7.8, which is a 2-standard deviation above the 14-day moving average. A break out of this level can post the stock to the psychological level of Rs 8.

The stock fell as much as 1.29% during Tuesday's trade compared to the 0.57% decline in the benchmark NSE Nifty 50, as of 10:03 a.m. The relative strength index was at 45.

Four out of the 22 analysts tracking the company have a 'buy' rating on the stock, five suggest a 'hold' and 13 have a 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 3%.

India's bank guarantee relief to the telecom industry is a "major relief" for Vodafone Idea, Citi Research said as it maintained its 'buy' rating with a target price of Rs 13 per share.

India waived bank guarantee obligation for the spectrums acquired before 2022, in a much-needed relief to the company and the industry. The cabinet waived off bank guarantees for telecom companies for deferred spectrum payments from 2012 onwards.

Prior to this reform, bank guarantees aggregating to Rs 24,800 crore were required to be provided by Vodafone Idea against each spectrum instalment, 13 months prior to the instalment falling due for the above auctions.

Any progress on Vodafone Idea’s debt funding will be a key monitorable going forward, Citi said in a note. Vi recently raised Rs 24,000 crore through equity and intent to raise Rs 25,000 crore further, via loans and another Rs 10,000 crore in form of BGs, to continue its capex plans.

However, the rejection of the plea seeking re-computation of average gross revenue or AGR by the department of Telecommunication continue to weigh on the operator.

Vodafone Idea's AGR liability stood at Rs 70,300 crore as of June 2024, which makes up 33% of its gross debt. Re-computation of the dues would have cut down AGR by Rs 30,000–35,000 crore.

The Aditya Birla Group company posted a loss of Rs 7,175.9 crore in the July–September period in comparison to Rs 6,432.1 crore in the preceding quarter ended June 30