Reliance Industries shares tumbled on Tuesday despite the company reporting a decent rise in fiscal third-quarter net profit, mainly on worries that its planned capital expenditure on its telecommunication venture would drag the company’s finances.
RIL shares were trading at Rs 1047.25 on BSE, down 2.76% from the previous close, amid the marginally down broader markets. BSE Sensex was down 0.13% at 27,252.89 points, while Nifty held on the 8,400-mark, trading down 0.12% at 8402.9 points in the late morning trade.
Reliance Industries yesterday said it will invest a further Rs 30,000 crore in its telecommunication venture Reliance Jio Infocomm to enhance network capacity and increase its competitiveness against the incumbents such as Airtel and Vodafone.
Reliance Industries, India’s largest business conglomerate launched its much awaited telecommunication venture Reliance Jio Infocomm last year with a whopping Rs 1.5 trillion investments to start with, mainly in building high-speed internet infrastructure over the new 4G/LTE network across the entire country. The company plans to come up with a rights issue to raise funds.
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Nomura said capital expenditure on Jio “remains a key worry” for Reliance Industries shares.
However, the company said it has been adding 600,000 new users per day had already added 72.4 million customers on its network since launch in a hyper-competitive market.
Reliance’s entry into the telecom space has forced the incumbent players to drastically cut tariffs – as much as by 66% – in order to retain their customer base, and has put the entire sector under tremendous pressure of choosing between protecting margins and user base. Reliance added over 19 million users in October, far exceeding the largest competing incumbent Bharti Airtel, which added 2.33 million in the same month.
Reliance Jio recently extended its inaugural free voice and data plan till March 31 drawing complaints and criticisms from its biggest rivals Airtel and Vodafone, who assert that its anti-competitive practices and freebies are hurting the industry. Vodafone went as far as to write down the value of its India business on hyper competition from the new entrant.
A national tribunal is set to hear a case regarding the company’s anti-competitive on February 1, following Airtel’s complaint. In the coming months, Jio will connect lakhs of merchants and shops to create commerce and payment network to support Prime Minister Narendra Modi’s vision of making India a cashless economy, Ambani said at a recent event.