Reliance Industries shares continue gains; jump 3% even as rivals try to match data tariff offers

By: | Updated: March 6, 2017 12:32 PM

Reliance Industries shares continued to surge on Monday and were the top gainers on benchmark indices, breaching Rs 1,300-mark and hitting a fresh 52-week high. Reliance Industries shares were trading at Rs 1,294 on BSE, up 2.82%.

The shares of India’s most profitable business conglomerate are on a sustained rise on the prospects of cash flows from its telecom business, which has seen heavy investments so far.

Reliance Industries shares continued to surge on Monday and were the top gainers on benchmark indices, breaching Rs 1,300-mark and hitting a fresh 52-week high. Reliance Industries shares were trading at Rs 1,294 on BSE, up 2.82%.

The shares of India’s most profitable business conglomerate are on a sustained rise on the prospects of cash flows from its telecom business, which has seen heavy investments so far.

Earlier last month, Reliance Jio Infocomm said it will start charging money from consumers for using its mobile telephony services, which it was offering so far for free. Reliance Industries Chairman Mukesh Ambani had said that Reliance Jio will offer its “prime” customers 1GB data per day with unlimited voice calls for Rs 303 per month, on a one-time payment of Rs 99. By comparison, then existing tariff plans of rival incumbent operators Bharti Airtel, Vodafone India and Idea Cellular offered about 1-2 GB data per month with unlimited voice calling for about Rs 340-350. However, following Reliance Jio, the three incumbent players have also introduced attractive tariffs with plenty of data and voice calls, to match the competition.

A slew of brokerages have raised their target on share prices of Reliance Industries citing the company’s investments not only in telecom, but also in its traditional energy and petrochemicals businesses coming to bear fruit.

Global brokerage CLSA last week raised the target price on Reliance Industries’ shares to Rs 1,500 from Rs 1,350, implying an upside of over 21% from Thursday’s closing price of Rs 1,233.25. CLSA maintained its ‘buy’ rating on the stock. It cited optimistic commentary by the company management on its telecom venture Reliance Jio, while also raising the valuation multiple on the refining business.

CLSA said in a note that Reliance Jio has told analysts it expects telecom industry revenue to reach $45 bln by the fiscal year 2020-21, while expecting to garner over half the market share.

“While Jio believes voice revenues will shrink materially, this should be more than offset by higher data revenues driven by big rise in data consumption,” CLSA said.

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Further, the research and brokerage firm also raised valuations on the company’s telecom, refining and retails businesses. “Jio’s superior capacity advantage may warrant higher EV/Ebitda multiple of 7.5x (earlier 7x) which implies Mar’18 equity value of US$6bn. We also raise multiple of refining to 6.5x EV/Ebitda (vs HP/BP at 7.5x) and retail to 1x EV/Sales (vs 0.5x), which drives our target to Rs1,500,” CLSA said.

CLSA forecasts Reliance Jio to clock an EBITDA (earning before interest, tax, depreciation and amortisation) of $4 billion in the financial year 2020-21.

Jal Irani, Senior VP at Edelweiss Capital Services, had also recently said that Reliance Industries is also expected benefit a lot in the near future as the company’s projects under commissioning will significantly add to free cash flows. “There are $40 billion worth of projects in commissioning phase, which doubles their (RIL’s) productive assets,” Irani said, adding, “We forecast RIL’s free cash flows to rocket from next year as the quarterly capex trend is plummeting.”

 

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