Jefferies has initiated a 'buy' call on Vodafone Idea with a target price of ₹20, marking 28.8% upside from Wednesday's closing price of ₹15.53. According to Jefferies, the brokerage expects the telecom operator's shares to climb back to levels last seen in 2018, positioning it as a 'high-beta turnaround story'. The bullish call comes as the brokerage anticipates a strengthening subscriber base that is expected to drive growth, with network investments helping to retain more customers and boost gross subscriber additions from FY28. This improvement is likely to enhance the translation of tariff hikes into revenue growth for the telecom operator. Vodafone Idea shares ended Wednesday's session at ₹15.53, up 0.7%, reflecting positive market sentiment following the brokerage's initiating coverage. In its latest analysis, Jefferies now projects the stock could reach ₹36 in a bull-case scenario, indicating 132% upside potential, assuming cumulative tariff hikes of 30% during FY27-29E. However, in a bear-case scenario, the brokerage expects the stock to fall to ₹9, assuming no tariff hikes during FY27-29E.
The Supreme Court has dismissed the government's GST demand against Vodafone Idea related to the sale of Vodafone Mobile Services' tower business, providing significant relief to the telecom operator. A bench of Justices J.B. Pardiwala and K. Vinod Chandran dismissed the Centre's challenge to a ₹363 crore GST demand against Vodafone Idea in relation to its erstwhile entity, Vodafone Mobile Services Ltd (VMSL). The court upheld the Bombay High Court's decision to quash these tax proceedings, citing that tax proceedings cannot be continued against a company that no longer exists after a merger. The ruling relied on the Supreme Court's 2019 judgment in the Maruti Suzuki case, where it held that tax proceedings against a company that had ceased to exist following an amalgamation were invalid, particularly when authorities were aware of the merger.
According to Jefferies, Vodafone Idea's network investments are reducing churn and supporting customer additions, setting the stage for an operational turnaround. The brokerage noted that ongoing network rollouts will help translate tariff hikes into top-line gains while helping the company sustain its revenue market share. The network investments are already driving down churn and will likely drive down churn further, also boosting gross subscriber additions, which in turn should drive a turnaround in subscriber additions from FY28. Jefferies estimates the company's revenue to grow at 11% CAGR over FY26-29, led by subscriber stabilization, premiumization and tariff-led ARPU growth. 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, with incremental EBITDA margins of around 50% over FY26-29, potentially rising above 60% from FY30 as network rollouts normalize. Jefferies estimates that Vodafone Idea is the most leveraged beneficiary of tariff hikes, with every 10% increase in tariffs potentially resulting in around 34% upside in equity value.
According to Jefferies, Vodafone Idea's operating cashflows are expected to grow at a steady pace, while cash outflows will rise sharply to more than ₹40,000 crore annually during FY29-34, resulting in a temporary cashflow mismatch over this period. The debt raise of ₹25,000 crore will be sufficient for FY27-29, but the company will require ₹16,000 crore fresh equity infusion in FY30 which will also trigger conversion of spectrum liabilities worth ₹15,300 crore to equity by the government. This would be enough to cover the cashflow shortfall over FY30-34. Provided that Vodafone Idea has raised equity of ₹44,700 crore since 2019, Jefferies believes raising ₹16,000 crore may not be difficult amid improving operating cashflows and continued government support. The brokerage 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.
Vodafone Idea shares were trading 0.13% higher at ₹15.54 on the National Stock Exchange (NSE) at the latest check, reflecting continued positive market sentiment following the brokerage's initiating coverage. The stock has risen 20% in the last one month, taking its year-to-date gains to 34%, sharply outperforming the Nifty 50, which has fallen around 9% over the same period. The telecom operator's market capitalisation stands at about ₹1.68 lakh crore. Among the 22 analysts covering Vodafone Idea, the consensus shows three 'Buy' ratings, eight 'Hold' ratings, and 10 'Sell' ratings on the stock, reflecting mixed sentiment about the telecom operator's prospects. The latest Jefferies call represents a significant shift from previous bearish sentiment, with the brokerage now positioning the stock as a turnaround opportunity. However, Axis Capital maintains a more cautious stance, retaining a 'Reduce' rating with a ₹13 target price, even after factoring in the potential ₹35,000 crore bank fundraise. According to Axis Capital's Gaurav Malhotra, the brokerage believes the recent rally has moved the stock beyond what is justified on fundamentals, with the ₹13 target already assuming the fundraise, network improvement and strong EBITDA growth.
