Vodafone Idea shares: 143% upside? Jefferies says 'Buy' as risk-reward turns positive

Jefferies has recommended 'Buy' on Vodafone Idea Ltd (VIL), saying the risk-reward has turned positive after a 23 per cent correction. The brokerage said the stock's fall comes despite improving subscriber trends. VIL's ongoing network rollouts, along with tariff hikes, should position it well to deliver compounded annual growth of 11 per cent in revenue and 25 per cent in Ebitda over FY26-29, Jefferies said.

Jefferies said it estimated VIL's fair value in the Rs 9-29 per share range, implying 143 per cent upside potential and 25 per cent downside potential, a favorable risk-reward. For now, it suggested a base target of Rs 16, down from Rs 20 earlier. The target suggests 34 per cent potential upside.

"At 21x EV/cash Ebitda, shares trades below 5-year average multiples, with 25 per cent potential downside and 143 per cent potential upside on our estimates, making risk-reward attractive, in our view. We lower our target multiple to 20 times, lower target price to Rs16/share and maintain our BUY," Jefferies said.

Despite a correction in Vodafone Idea shares, the FY28 Ebitda outlook remains unchanged as reflected in consensus estimates. Over the past three months, Vodafone Idea's active mobile subscriber base (ex M2M) has stabilised, with average monthly subscriber decline reducing to 6 lakh against a monthly decline of 10 lakh during the past two years. This has been driven by 39 per cent increase in its
broadband base stations on network and 14 per cent increase in network sites over the past two years, Jefferies said.

"Over FY26-29E, we expect VIL's sites on network to expand by 26% to 261K. This should not only boost gross subscriber additions, as these are directly correlated to the size of network, but should also help reduce churn due to better network experience. Over FY27-29E, we expect VIL's consumer subscriber base to grow by 6m which in turn should support better translation of tariff hikes into revenues," Jefferies said.

Given VIL's high operating leverage - 20 per cent cash Ebitda margins, Jefferies estimated every 10 per cent tariff hike to drive a 17 per cent increase in its cash Ebitda. Furthermore, Vodafone Idea has an Enterprise value to market cap ratio of 2.2 times. Hence, every unit increase in EV is estimated to drive 2.2 times jump in equity value for Vodafone Idea, due to which every 10 per cent
tariff hike should drive a 38 per cent increase in market cap for Vodafone Idea, Jefferies said.