Vodafone Idea shares offer an attractive risk reward with significant upside potential following the recent correction, according to Jefferies.
The brokerage firm reiterated its ‘Buy' rating on Vodafone Idea shares but cut its target price to Rs 16 per share from Rs 20 earlier. Vodafone Idea share price target implies an upside potential of nearly 34% from Monday's closing price.
Jefferies has lowered its target valuation multiple to 20 times enterprise value (EV) to cash EBITDA from its earlier estimate, citing higher yields. However, it expects ongoing network expansion and potential tariff hikes to support the company's revenue growth and profitability over the coming years.
Vodafone Idea share price has corrected 23% from its September levels despite improving subscriber trends and an unchanged FY28 EBITDA outlook reflected in consensus estimates. The brokerage sees a favourable risk-reward opportunity, with potential upside of 143% and downside of 25% based on its valuation scenarios.
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Network Expansion To Support Subscriber Growth
Vodafone Idea's active mobile subscriber base, excluding machine-to-machine connections, has shown signs of stabilisation over the past three months. The average monthly subscriber decline has narrowed to around 6 lakh from approximately 10 lakh over the previous two years.
Jefferies attributed the improvement partly to network investments. Vodafone Idea's broadband base stations increased 39%, while its network sites expanded 14% over the past two years.
The brokerage expects the company's network sites to increase 26% to 2.61 lakh by FY29. This expansion could improve network coverage, boost gross subscriber additions and reduce customer churn. Jefferies estimates Vodafone Idea's consumer subscriber base could grow by 60 lakh between FY27 and FY29.
Tariff Hikes Could Boost Profitability
Jefferies expects Vodafone Idea to deliver a compound annual growth rate (CAGR) of 11% in revenue and 25% in cash EBITDA over FY26-FY29.
The brokerage estimates that every 10% tariff hike could increase cash EBITDA by 17%. Given the company's high financial leverage, the same tariff increase could translate into a 38% rise in market capitalisation, according to its calculations.
Valuations Offer Attractive Risk-Reward
Vodafone Idea currently trades at 21 times cash EV/EBITDA, below its five-year average valuation multiple. Jefferies estimates fair value between Rs 9 and Rs 29 per share - implying 143% upside potential and 25% downside potential - under different assumptions for tariff hikes, EBITDA growth and valuation multiples.
The brokerage reiterated its ‘Buy' rating with a revised target price of Rs 16 per share, citing the potential for improving operating performance as network investments and tariff hikes support growth.
On Monday, Vodafone Idea share price jumped 5.29% to end at Rs 11.95 apiece on the BSE.
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