Jefferies projects wide upside and downside for Vodafone Idea shares

Jefferies has outlined two contrasting outlooks for Vodafone Idea Ltd. In its bullish projection, the brokerage estimates the share price could climb as much as 143% from current levels, while its bearish scenario suggests a potential 25% decline. The firm lowered its target price to Rs 16 from Rs 20 in a base case, leaving a modest 34% upside.

The analyst notes that the telecom operator’s subscriber base has stabilized, with the average monthly decline narrowing to 0.6 million over the past three months, aided by a 39% rise in broadband base stations and a 14% increase in network sites in two years. Jefferies expects the number of network sites to grow by 26% to about 261,000 by FY26-29, which it says should support gross subscriber additions and reduce churn.

"Over FY27-29E, we expect VIL's consumer subscriber base to grow by 6 million, which in turn should support better translation of tariff hikes into revenues," the brokerage wrote.

Jefferies also calculates that a 10% increase in tariffs could lift cash EBITDA by 17% and boost market capitalisation by roughly 38%, given the company's enterprise-value-to-market-capitalisation ratio of 2.2x. The stock currently trades at 21 times cash EV/EBITDA, below its five-year average, and the firm believes the multiple will stay elevated until EBITDA growth exceeds 25% and cash EBITDA margins surpass 40%, targets it expects to meet by FY32-33.

Assuming a 12 times EV/EBITDA multiple in FY33, Jefferies estimates a 16% internal rate of return from the present price through March 2032. Over FY26-29, the brokerage forecasts revenue and cash EBITDA compound annual growth rates of 11% and 25% respectively, with cash EBITDA potentially ranging from Rs 147 billion to Rs 224 billion depending on margin and tariff assumptions. Applying an EV/EBITDA multiple range of 18-22x, Jefferies values the shares between Rs 9 and Rs 29, indicating the stated upside and downside potential.