HSBC Telecom Picks: 2 buys, 1 sell; upside seen up to 25%

Telecom stocks: HSBC has retained a cautious view on Vodafone Idea despite recent developments around AGR relief and planned capital expenditure. The brokerage said these steps do not materially change the competitive dynamics of the Indian telecom sector.

Reduce rating on Vodafone Idea share price

HSBC maintained its ‘Reduce’ rating on Vodafone Idea and raised the target price to Rs 7 from Rs 5.

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Shares of Vodafone Idea were trading at Rs 11.00, down Rs 0.16 or 1.43 per cent during the session.

The stock opened at Rs 11.20. It touched an intraday high of Rs 11.22 and a low of Rs 10.87.

The company’s market capitalisation stood at Rs 1.18 LCr.

The stock remains below its 52-week high of Rs 12.80. Its 52-week low is Rs 6.12.

AGR relief, capex not enough

According to HSBC, Vodafone Idea’s adjusted gross revenue (AGR) relief and its capex plans may provide some operational support. However, they are unlikely to significantly alter industry structure or narrow the gap with stronger peers.

The brokerage believes competitive intensity will remain manageable, led largely by the two stronger private players.

ARPU outlook remains strong

HSBC said the mobile average revenue per user (ARPU) outlook remains robust for the sector. It expects further tariff hikes over time, which should support revenue growth.

The brokerage highlighted that industry growth drivers remain intact. These include rising ARPU, expansion in home broadband subscribers, and improving free cash flow generation.

Airtel, RIL remain top picks

HSBC maintained its ‘Buy’ rating on Bharti Airtel with a target price of Rs 2400. The stock was trading at Rs 1,993.00, up Rs 15.60 or 0.79 per cent.

The stock opened at Rs 1,994. It hit a high of Rs 1,996.30 and a low of Rs 1,983.90.

The company’s market capitalisation stood at Rs 11.95 LCr.

The stock’s 52-week high is Rs 2,174.50, while the 52-week low is Rs 1,559.50.

The brokerage expects Airtel to benefit from higher ARPU, strong subscriber additions in home broadband, and improving free cash flow. It also sees room for dividend growth.\

HSBC also retained its ‘Buy’ rating on Reliance Industries with a target price of Rs 1780. The stock was trading at Rs 1,426.10, up Rs 6.70 or 0.47 per cent.

The stock opened at Rs 1,425. It touched a high of Rs 1,434.90 and a low of Rs 1,419.20.

The company’s market capitalisation stood at Rs 19.24 LCr.

The stock’s 52-week high is Rs 1,611.80 and the 52-week low is Rs 1,114.85.

It said Reliance Industries, through its telecom business, remains well placed to capture ARPU-led growth and expand its broadband base.

Overall, HSBC continues to prefer Airtel and Reliance Industries over Vodafone Idea in the Indian telecom space.