Vodafone Idea a high-beta turnaround play, says Jefferies; initiates buy with 29% upside potential

Vodafone Idea could offer a high-beta turnaround opportunity, global brokerage Jefferies said while initiating coverage on the telecom operator with a ‘Buy’ rating and a price target of Rs 20 apiece, implying a 28.86% upside from Wednesday’s closing price of Rs 15.52 on the NSE.

The brokerage cited the potential for subscriber stabilisation, operating leverage and tariff-led earnings growth to drive the turnaround.

Vodafone Idea could see an 11% revenue CAGR over FY26-29 as subscriber trends stabilise, while cash EBITDA could grow at a 25% CAGR over FY26-31, Jefferies analysts Akshat Agarwal and Ayush Bansal said.


“VIL is a high-beta turnaround story, supported by accelerating revenue growth, operating leverage, and tariff-led earnings expansion,” the analysts said.

Jefferies expects Vodafone Idea’s network investments to reduce churn and support gross subscriber additions, potentially resulting in a turnaround in subscriber additions from FY28. The brokerage also sees scope for premiumisation, given the company’s lower share of data subscribers.

“We forecast 11% revenue CAGR over FY26-29, driven by subscriber stabilization, premiumization and tariff-led ARPU growth, helping sustain revenue market share,” Agarwal and Bansal said.

Vodafone Idea shares ended Wednesday’s session at Rs 15.52 apiece, up 0.65% from the previous close on the NSE.

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Operating leverage to lift cash EBITDA

The brokerage expects Vodafone Idea’s cash EBITDA margin to expand by 840 basis points to 29% over FY26-29, primarily driven by operating leverage.

Its estimates imply incremental EBITDA margins of around 50% over FY26-29, below the 60%-plus margins seen for telcos, owing to accelerated network rollouts during the period. Jefferies expects incremental EBITDA margins to rise above 60% from FY30 as network rollouts normalise.

“This should enable VIL to deliver 25% CAGR in cash EBITDA over FY26-31,” the analysts said.

Jefferies expects the improvement in cash EBITDA to drive a sharp improvement in return on invested capital, moving from negative territory currently to double digits by FY32.

According to Jefferies, Vodafone Idea is the most leveraged beneficiary of tariff hikes. Every 10% increase in tariffs could potentially result in around 34% upside in equity value.

Jefferies’ Rs 20 price target is based on a valuation of 23x EV/Cash EBITDA, in line with Vodafone Idea’s five-year average.

The brokerage’s investment thesis, however, depends on future tariff hikes and Vodafone Idea securing additional funding, including a required Rs 16,000 crore equity raise by FY30.

VIL’s cash outflows to rise sharply

Jefferies expects Vodafone Idea’s cash outflows to rise sharply to more than Rs 40,000 crore annually during FY29-34, creating a temporary cashflow mismatch over this period.

While the company’s planned Rs 25,000 crore debt raise is expected to be sufficient to tide over FY27-29, the brokerage estimates that Vodafone Idea will require a fresh Rs 16,000 crore equity infusion in FY30.

The equity infusion would also trigger the conversion of spectrum liabilities worth Rs 15,300 crore into equity by the government, according to the report.

The brokerage said the proposed funding would be sufficient to cover the cashflow shortfall during FY30-34.

“Given that VIL has raised equity of Rs 44,700 crore since 2019, we believe raising another Rs 16,000 crore equity amidst improving operating cashflows and continued govt. support may not be difficult,” Jefferies said.

While acknowledging execution and funding risks to its turnaround thesis, Jefferies believes the required equity raise may not be difficult given Vodafone Idea’s improving operating cashflows and continued government support.

This article has been written by Kumar Gaurav, who is not a SEBI-registered Research Analyst or an Investment Adviser. Gaurav and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment.