A few brokerages have price targets that suggest up to 20 per cent upside for the stock.
JPMorgan said the hike has restored Jio’s tariff discount to Bharti Airtel. It noted that JioPhone’s tariff has remained unchanged and that Jio’s subscriber traction should remain strong. The foreign brokerage has raised its FY22-24 earnings estimates for Jio by 5-23 per cent.
Motilal Oswal Securities said RJio’s tariff hike was across all price plans, including on JioPhone’s lowest 28-day plan, which was better than its expectation of a tariff hike in only the smartphone category.
The 20 per cent tariff hike may lead to incremental revenue of Rs 15,000 crore and Ebitda of Rs 9,700 crore, the brokerage said, adding it would lift the overall ARPU (average revenue per user) to Rs 175 from Rs 145.
That said, for RJio, there could be a risk of downtrading to lower price plans, as a consumer can save 20-25 per cent for even a 1GB/day plan, Motilal Oswal said. “This is unlike Bharti and Vodafone Idea, which has limited risk of downtrading due to the design of the price plans.”
Motilal Oswal said the current valuation factors a rich 20 times EV/Ebitda multiple to RJio that partly factors the tariff hike. This brokerage has a target of Rs 2,900 for the Reliance Industries stock, which suggests a 20 per cent upside over Friday’s close.
Kotak Institutional Equities has upgraded RIL to buy from add, noting favorable reward-risk balance after the recent correction and relative sharp underperformance versus peers in telecom and retail businesses.
“We expect RIL’s Ebitda to grow by a robust 26 per cent CAGR over the next two years driven by strength in refining and polyester margins, rise in telecom tariffs, robust growth in retail and increase in E&P contribution. We also expect the stock to rerate led by scaling up of new commerce and new energy forays,” Kotak said, while suggesting a target of Rs 2,850 on the scrip.
During the previous tariff hike in December 2019, RJio’s Ebitda increase was gradual over 4-5 quarters, unlike peers which saw the benefits accruing over two quarters as the company highlighted that it has a high share of long validity customers.
Meanwhile, the stock also got a boost from reports that the Mukesh Ambani-led company is weighing a bid for UK telecoms group, BT, formerly British Telecom, according to multiple people familiar with the matter. This comes just two months after Reliance was outbid by a PE consortium of Apax Partners and Warburg Pincus who scalped T-Mobile’s Dutch unit for €5.1 billion (Rs 43,329 crore, according to the current conversion rate). Nonetheless, the unexpected bid for the Dutch telecom unit signalled Ambani’s global telecom aspirations. Ambani also has been shuttling between Mumbai and London, after buying the iconic Stoke Park for £57 million.
