Nomura on Wednesday said the Bombay High Court's verdict, which set aside the Department of Telecommunications' (DoT) one-time spectrum charge (OTSC) demands on Vodafone Idea (VIL) and Bharti Airtel, removed a long-standing legacy overhang for both operators. The decision was materially positive from both a sentiment and accounting perspective, although its financial significance was more pronounced for VIL, the foreign brokerage said. For now, the brokerage has maintained 'Neutral on the stock with a target of Rs 12.60 per share. 

Noting that it is a High Court decision that can be appealed in the Supreme Court, Nomura does not expect provision reversals to be booked immediately and believes VIL and Bharti Airtel managements might want to ascertain the likelihood of a final favourable outcome.

Nomura said Vodafone Idea has recognised about Rs 7,580 crore worth, as per its FY25 annual report, against the matter. It also carries a contingent liability of Rs 3,350 crore on its books. That said, it feels the situation is slightly complicated for Vodafone Idea as the provisioned amount includes OTSC pertaining to both former Idea and Vodafone before the merger. 

"The judgement on 8 June provides a relief to only the erstwhile Idea's portion of OTSC liability, while former Vodafone's OTSC liability hearing is currently pending in the Supreme Court," Nomura said.

The foreign brokerage believes that the potential reversal of Rs 7,580 crore for Vodafone Idea is more meaningful in relative terms given Vodafone Idea's negative net worth and cash flow challenges.

"However, we also note that the OTSC relief is a small part of Vodafone Idea's total liabilities which are dominated by large AGR and spectrum liabilities. We maintain our Neutral rating on Vodafone Idea as we value the stock based on 14 times FY28F EV/Ebitda to arrive at our target price to Rs 12.60," Nomura said. 

Nomura cited three key triggers for the Vodafone Idea stock going ahead. They include the successful debt-capital raise; industry-wide tariff hikes; and meaningful subscriber gains.