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Vodafone Idea: A High-Beta Turnaround Story Unfolds
9 Sep
Summary
- Jefferies initiates 'buy' call with Rs 20 target price, a 28.8% upside.
- Network investments aim to boost subscriber growth from FY28.
- EBITDA margins expected to expand 840bps to 29% by FY29.
Jefferies has issued a 'buy' recommendation for Vodafone Idea, setting a target price of Rs 20, which represents a potential 28.8% increase from its recent closing price. This optimistic outlook suggests the stock could reach values last observed in 2018. The firm's analysis indicates that Vodafone Idea's ongoing network investments are proving effective in customer retention and are projected to drive a turnaround in subscriber additions starting from FY28.
This anticipated improvement in subscriber numbers is expected to enhance the translation of tariff hikes into revenue growth. Furthermore, the operator's substantial base of lower-tier data subscribers presents a significant opportunity for premiumization. Jefferies characterizes Vodafone Idea as a 'high-beta turnaround story,' projecting an 11% revenue growth between FY26 and FY29, supported by subscriber stabilization, premiumization strategies, and average revenue per user (ARPU) growth.
The brokerage anticipates an 840 basis points expansion in cash EBITDA margins, reaching 29% by FY29, primarily due to operating leverage. While initial margins are expected to be lower than industry peers due to network expansion spending, they could rise to 60% by FY30 once rollouts normalize. Significant operating cash flow growth is foreseen, though a temporary cashflow mismatch is projected between FY29 and FY34, requiring a Rs 160 billion equity infusion in FY30.
