Reliance Industries hits over 7-year high as Jio promises to end freebies

The stock rallied 8% to Rs 1,172, up 8% on NSE in intra-day trade.

Reliance Industries (RIL) hit an over seven-year high of Rs 1,172, up 8% on the National Stock Exchange (NSE), recording its sharpest rally in intra-day trade in past 21 months.

The stock hit its highest level since June 2009. Earlier, on May 16, 2014, it rallied 8.7% during intra-day trade. On the BSE, the stock hit high of Rs 1,187 on November 1, 2010, during intra-day trade.

In past two trading sessions, the stock surged 9% from Rs 1,075 on February 20, 2017 after Reliance Jio Infocomm (“Jio”), a subsidiary of RIL, announced that its tariff plans will become applicable from April 1, 2017.

The new offerings will no longer be free but Jio has priced its services attractively to retain its 100 million customers, who have signed up since September 5, when the services were first offered. Jio is seeking to retain them through special prime memberships at a one-time fee of Rs 99 and Rs 303 a month for unlimited voice, data and content. CLICK HERE TO READ FULL REPORT.

“Consolidation within incumbents effectively improves their financial position and allows them to match JIO on pricing for longer, and this would be negative for JIO as it would bring down the industry ARPUs (average revenue per users) and lower margins. However, if JIO sticks to its stated or ARPUs where the actual base pack starts at Rs 499, it would be positive for JIO in the long term,” analysts at JP Morgan said in report dated January 31, 2017.

In the brokerage's view, JIO’s investment case depends on higher paying ARPU subs. 50 million subscribers paying Rs 400 APRU would likely be far more profitable than 100 million subs paying Rs 200 per month. RJio needs the higher paying ARPU subs as only they would be able to pay for more of the services that RJio plans to offer eventually.

Going ahead, analysts expect incumbent telecom operators to realign their offerings to compete with RJIO, as the latter has set up high network capacity, banking on spectral efficiency of 4G network, which enables it to offer significantly higher benefits to consumers. 

"We expect RJIO to maintain lower-than-incumbents prices. This is likely to lead to further pressure on realisation and subscriber acquisition costs. We will watch for stabilisation in gross subscriber addition in industry and churn ratio of incumbent operators as proxy for competitive intensity," point out Sandip Agarwal and Pranav Kshatriya of Edelweiss Research in a note.

"At the current market price, Bharti Airtel and Idea are trading at 6.8x and 7.3x FY18E EV/EBITDA respectively. We retain ‘HOLD’ on Bharti and Idea with target price of Rs 340 and Rs 80, respectively," they add.

At 10:13 am; RIL was up 7% at Rs 1,165, the top gainer from Nifty 50 and S&P BSE Sensex. The trading volume on the counter jumped more than five-fold, with a combined 10.23 million shares changed hands on the BSE and NSE.

Meanwhile, RIL regained its number two position in overall market capitalisation (m-cap) ranking, with m-cap of Rs 377,423 crore. The market valuation of RIL increased by Rs 24,410 crore from Rs 353,013 crore on Monday, the BSE data show.