Why Jefferies finds Vodafone Idea stock a high-beta turnaround play

Vodafone Idea share price target: Jefferies has initiated coverage of Vodafone Idea with a 'Buy' rating and set a target price of ₹20, implying a 30 per cent upside from the previous close of ₹15.51.

Vodafone Idea share price target: Vodafone Idea (VIL) could emerge as a high-beta turnaround opportunity in the telecom sector, said Jefferies as it initiated coverage on the stock with a 'Buy' rating.

 

Jefferies has set Vodafone Idea share price target at ₹20, which implies an upside of 30 per cent from the previous close of ₹15.51.

 

At the last check, Vodafone Idea shares were trading 0.13 per cent higher at ₹15.54 on the National  Stock Exchange (NSE).

 

Subscriber mix

 

The brokerage expects subscriber stabilisation to drive a sharp improvement in revenue. It assumes 5-6 million M2M subscriber additions and -2 million to +8 million mobile subscriber additions over FY27-29.

 

 

"This subscriber addition should lead to a stabilisation in subscriber market share for Vodafone Idea," Jefferies said, while estimating the company's revenue to grow at 11 per cent CAGR over FY26-29.

 

The report further said that Vodafone Idea’s investments in scaling up the 4G/5G networks are also supporting an improvement in its subscriber mix. The share of VIL’s 4G/5G subscribers has increased from 43 per cent in March 2021 to 67 per cent in March 2026.

 

"When comparing this to the same for Bharti Airtel, Vodafone Idea’s data subscriber penetration is lagging Bharti Airtel’s by three years. This offers a longer run-way for subscriber premiumization for VIL vs. its peers," it said. CHECK Stock Market LIVE Updates 

 

Strong operating leverage

 

Also, strong operating leverage could drive a 25 per cent cash Ebitda CAGR in the period and a sharp Return on Invested Capital (RoIC) inflection through FY31. 

 

Over FY26-29, Jefferies said that Vodafone Idea could deliver an 840bps expansion in cash Ebitda margins to 29 per cent, primarily driven by operating leverage.

 

Its assumptions imply incremental Ebitda margins of around 50 per cent over FY26-29, which is lower than the 60+ per cent margins for telcos considering the accelerated network rollouts during this period.

 

"We expect incremental Ebitda margins to rise further to 60+  per cent from FY30 once network rollouts normalise. This should enable VIL to deliver 25 per cent CAGR in cash Ebitda over FY26-31," the Jefferies note said. 

 

Tariff hike impact

 

On how the tariff hikes, Jefferies said that Vodafone Idea is the most leveraged beneficiary of tariff hikes, with every 10 per cent increase potentially driving around 34 per cent equity value upside. 

 

Cash flow, fundraise

 

Jefferies also mentioned that while the ₹250 billion debt raise will be sufficient to tide over FY27-29, the company will need a ₹160 billion fresh equity infusion in FY30, which will also trigger conversion of spectrum liabilities worth ₹153 billion to equity by the government.

 

"This shall be sufficient to cover the cash flow shortfall over FY30-34," the report said.

 

Given that Vodafone Idea has raised equity of ₹447 billion since 2019, Jefferies added that raising another ₹160 billion in equity amidst improving operating cash flows and continued government support may not be difficult. 

Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.