Global brokerage firm Jefferies has reinitiated its coverage on Vodafone Idea Ltd (VIL), assigning a 'Buy' rating to the telecom operator's shares with a target price of ₹20. This optimistic outlook positions VIL as a significant turnaround play, according to Jefferies' analysis, which anticipates substantial gains driven by strategic improvements.
Turnaround Driven by Tariffs and Network Investment
Jefferies' investment thesis for Vodafone Idea hinges on several key factors, including accelerating revenue growth, significant operating leverage, and the potential for tariff-led earnings expansion. The firm forecasts a robust 25% compound annual growth rate (CAGR) in cash Ebitda between FY26 and FY31, projecting a return on invested capital (ROIC) to move from negative territory into double digits by FY32.
A critical component of this turnaround is the impact of future tariff hikes. Jefferies suggests that every 10% increase in tariffs could translate into a substantial 34% upside in VIL's equity value. The brokerage's ₹20 target price is based on 23 times EV/Cash Ebitda, aligning with VIL's five-year average.
Subscriber Stabilization and Equity Infusion
VIL's ongoing network investments are already contributing to a reduction in subscriber churn, a trend expected to continue and boost gross subscriber additions from FY28. This stabilization is projected to support an 11% revenue CAGR from FY26 to FY29, further fueling cash Ebitda growth.
However, the turnaround is contingent on a required ₹16,000 crore fresh equity infusion by FY30. This capital, Jefferies notes, would also trigger the conversion of ₹15,300 crore in spectrum liabilities into equity by the government, ensuring sufficient cash flow coverage through FY34. Given VIL's history of raising ₹44,700 crore in equity since 2019, Jefferies believes securing additional funds amidst improving operational cash flows and government support is achievable.
Analyst Sentiment Diverges
The ₹20 target price set by Jefferies is notably higher than the 12-month Bloomberg consensus target of ₹12.43, which is based on estimates from 20 analysts. It also contrasts sharply with HSBC's recent 'Reduce' rating for VIL, which carried a target price of ₹8.25 per share. As of Wednesday's close, Vodafone Idea shares settled at ₹15.52 apiece.