New Delhi [India], September 10 : Global brokerage firm Jefferies expects a 25 per cent compound annual growth rate (CAGR) in operating profit for Vodafone Idea Limited (VIL), driven by operating leverage, subscriber stabilization, and tariff-led earnings expansion.
The brokerage termed the company a high-beta turnaround opportunity in the Indian telecom sector, despite existing execution and funding risks.
According to Jefferies, network investments by the company reduce churn and support customer additions, setting the stage for an operational turnaround.
"VIL offers high-beta turnaround opportunity in Indian telecom. We expect subscriber stabilization to support an 11% revenue CAGR over FY26-29 which along with strong operating leverage will drive a 25% cash EBITDA CAGR and a sharp ROIC inflection through FY31," Jefferies stated in its report.
The brokerage noted that ongoing network rollouts will help translate tariff hikes into top-line gains while helping the firm sustain its revenue market share.
"VIL's network investments are already driving down churn and will likely drive down churn further and also boost gross subscriber additions, which in turn should drive a turnaround in subscriber additions from FY28," the report added.
On operating profitability, Jefferies projects an 840-basis-point expansion in cash EBITDA margins to 29 per cent over the FY26–29 period.
"Over FY26-29, we expect Vodafone Idea to deliver a 840bps 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," the brokerage stated.
Jefferies expects these incremental EBITDA margins to rise further to over 60 per cent from FY30 once network rollouts normalise, supporting cash EBITDA growth through FY31.
Addressing funding and cash flows, the brokerage highlighted that while operational cash flows expand, cash outflows will increase sharply to over Rs 400 billion annually during FY29–34, causing a temporary cash flow mismatch.
"While the Rs250bn debt raise will be sufficient to tide over FY27-29, VIL will need Rs160bn fresh equity infusion in FY30 which will also trigger conversion of spectrum liabilities worth Rs153bn to equity by the Govt," the report stated.
Jefferies added that this mechanism will cover the shortfall over FY30–34, noting that securing another Rs 160 billion equity injection amid improved operational performance remains feasible.
"VIL is the most leveraged beneficiary of tariff hikes, with every 10% increase potentially driving ~34% equity value upside. Our Rs20 PT is based on 23x EV/Cash EBITDA - in line with its 5-yr average. Our investment thesis hinges on future tariff hikes and a required Rs160bn equity raise by FY30," Jefferies stated.