Outlook on telecom companies was updated after recent developments in the AGR (adjusted gross revenues) issue and tariff hike plans.
On Tuesday, Bharti Airtel shares fell after a rating downgrade from ICRA while Reliance Industries Limited (RIL) gained to hover around its record high after JP Morgan's price target increase.
Rating agency ICRA downgraded Bharti Airtel's long-term rating from "AA" to "AA-" citing the recognition of higher than anticipated provision pertaining to the Supreme Court judgement on dues payable towards license fees on AGR as well as spectrum usage charge in the latest quarterly results. It also reaffirmed the telecom company's commercial paper at "A1+."
"Although the company has not tied up funds for the same, this liability, if materialises is expected to be funded through a bridge loan, which would result in deterioration in debt coverage metrics in near term," ICRA said in a release.
Shares of Bharti Airtel slipped 3.35 percent to Rs 435.75 apiece on NSE.
Last week, Airtel and Vodafone Idea filed review petitions with the Supreme Court on the AGR verdict issued on 24 October. Also, it announced tariff hikes starting 1 December.
ICRA said that the outcome of these events is expected to resolve the rating watch that is currently under negative implications.
Shares of Reliance Industries Limited rallied to a new all-time high of Rs 1,576.35 to become the most valued Indian company, inching closer to Rs 10 lakh crore in valuation.
The surge comes after analysts said that its telecom arm Jio is set to drive the performance of the stock after the announcement of its plan to raise tariffs.
JP Morgan believes that the conglomerate's consumer-facing businesses will drive up valuations for the stock.
The brokerage has estimated a 25 percent tariff hike over the next two years for Jio, which could drive its estimate for RIL's PAT (profit after tax) increase to 12 percent during in the financial year 2021-22.
"We also increase our multiple for Jio to 12 times from 10, given the visibility of tariff hikes, and this drives our price target higher to Rs 1,565 (vs Rs 1,400). RIL shares have outperformed the index on a year-to-date basis even as the core business environment remains weak," it said.
"Expectations of re-rating and de-leveraging of the consumer business should continue to drive relative outperformance from here on. However, we maintain our 'neutral' rating even as valuation multiples seem stretched and the core businesses environment stays weaker. The consumer business remains on a strong footing," JP Morgan added.