Vodafone Idea (VIL) has been struggling with falling subscribers and mounting losses for years. But global brokerage Jefferies now sees the tide turning. It has initiated coverage on the stock with a ‘Buy’ rating and a price target of Rs 20. This implies an upside of nearly 30% from current levels.
Jefferies is betting on three things coming together. This includes – stabilising subscribers, higher tariffs and strong operating leverage. At the same time, the brokerage has flagged funding and execution risks.
Let’s take a look at what the brokerage house is saying about this telecom sector stock and the rationale behind it –
Subscriber losses could be the first turning point
According to the Jefferies report, Vodafone Idea’s recent network investments are beginning to reduce subscriber churn. If that trend continues, Jefferies expects gross subscriber additions to improve and the company’s subscriber base to stabilise from FY28.
Jefferies said, “Subscriber turnaround to drive growth uptick.”
The brokerage expects revenue to grow at around 11% compound annual growth rate between FY26-29. It sees subscriber stabilisation, premiumisation and higher average revenue per user (ARPU) supporting that growth.
Vodafone Idea also has a lower share of data subscribers compared with peers, leaving room to move users towards higher-value plans, according to the brokerage report.
Tariff hikes could have an outsized impact
Vodafone Idea is seen as the telecom player with the highest sensitivity to tariff increases. Jefferies estimates that every 10% tariff hike could potentially translate into around 34% upside in equity value.
The brokerage said, “VIL is the most leveraged beneficiary of tariff hikes, with every 10% increase potentially driving ~34% equity value upside.”
Operating leverage: Can margins make the difference?
The brokerage expects Vodafone Idea’s cash EBITDA margin to expand by around 840 basis points to 29% by FY29.
As the network gets larger, the company can spread its fixed costs across a bigger revenue base. Jefferies expects cash EBITDA to grow at around 25% CAGR between FY26 and FY31.
It said, “Over FY26-29, we expect Vodafone Idea to deliver a 840bps expansion in cash EBITDA margins to 29% primarily driven by operating leverage.”
The brokerage expects the incremental EBITDA margin to rise further to above 60% from FY30 once the current network rollout cycle starts to normalise.
The biggest hurdle: Funding the turnaround
Jefferies estimates Vodafone Idea’s annual cash outflows could rise above Rs 40,000 crore during FY29-34.
The brokerage expects the company’s planned Rs 25,000-crore debt raise to support operations through FY27-FY29. However, it believes Vodafone Idea may need another Rs 16,000 crore equity infusion in FY30.
At the same time, the government could convert around Rs 15,300 crore of spectrum liabilities into equity.
Jefferies said, “VIL will need Rs 16,000 crore fresh equity infusion in FY30 which will also trigger conversion of spectrum liabilities worth Rs153bn to equity by the Govt.”
Jefferies’ bullish call comes with clear risks
The brokerage sees Vodafone Idea as a high-risk, high-beta turnaround opportunity. It said, “VIL is a high-beta turnaround story, supported by accelerating revenue growth, operating leverage, and tariff-led earnings expansion.”
Jefferies values the stock at 23 times enterprise value to cash EBITDA, broadly in line with its five-year average.
Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.