Global brokerage Jefferies initiated coverage on Vodafone Idea stock on September 9 calling the company a "high-beta turnaround opportunity in Indian telecom" and gave price target of Rs 20.
Jefferies sees up to 29% upside for the stock, which closed nearly 1% higher on September 9.
"Over FY26-29, we expect Vodafone Idea to deliver a 840 bps expansion in cash EBITDA margins to 29% primarily driven by operating leverage. Our assumptions imply incremental Ebitda margins of 50% over FY26-29, which is lower than the 60%+ margins for telcos considering the accelerated network rollouts during this period. We expect incremental EBITDA margins to rise further to 60%+ from FY30 once network rollouts normalise. This should enable VIL to deliver 25% CAGR in cash EBITDA over FY26-31," the brokerage added.
"While VIL's operating cashflows will grow at a steady pace, its cash outflows will rise sharply to Rs 40,000 crore-plus annually during FY29-34 driving a temporary cashflow mismatch over this period. While the Rs 25,000 crore debt raise will be sufficient to tide over FY27-29, VIL will need Rs 16,000 crore fresh equity infusion in FY30 which will also trigger conversion of spectrum liabilities worth Rs 15,300 crore to equity by the Govt. This shall be sufficient to cover the cashflow shortfall over FY30-34. Given that VIL has raised equity of Rs 44,700 crore since 2019, we believe raising another Rs 16,000 crore equity amidst improving operating cashflows and continued govt. support may not be difficult," Jefferies said.
Strong cash EBITDA margin expansion from depressed levels of 21% will not only drive a 25% CAGR in cash EBITDA over FY26-31 but will also drive an ROIC inflection from negative territory today to double digits by FY32. VIL is the most leveraged beneficiary of tariff hikes, with every 10% increase potentially driving 34% equity value upside, said Jefferies.