Reliance Jio launch: Why analysts want investors to be cautious on Bharti Airtel, Idea Cellular

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Updated: September 2, 2016 1:08:39 PM

Reliance Jio launch: The data and tariff plans introduced by Reliance Industries (RIL) chairman Mukesh Ambani at the company’s 42nd annual general meeting (AGM) is expected to dent the business of established incumbents like Bharti Airtel, Idea Cellular, Vodafone and Reliance Communications.

Reliance Jio launch: Why analysts want investors to be cautious on Bharti Airtel, Idea Cellular

Reliance Jio launch: The data and tariff plans introduced by Reliance Industries (RIL) chairman Mukesh Ambani at the company’s 42nd annual general meeting (AGM) is expected to dent the business of established incumbents like Bharti Airtel, Idea Cellular, Vodafone and Reliance Communications. (Photo: Reuters)

Mobile users would cheer Reliance Jio’s commercial launch on Monday, September 5, 2016 with unlimited voice offerings and tariff plans starting at Rs 149. The data and tariff plans introduced by Reliance Industries (RIL) chairman Mukesh Ambani at the company’s 42nd annual general meeting (AGM) for Reliance Jio is expected to dent the business of established incumbents like Bharti Airtel, Idea Cellular, Vodafone and Reliance Communications. Analysts warn investors to be cautious on Bharti Airtel and Idea Cellular stocks on increasing competitive intensity. However, they feel that these companies would have to alter their tariffs and data plans and prices to meet the competition, but whether they would be able to match the Reliance Jio’s offering is something to be seen.

Ambani on Thursday announced the company’s foray into the telecom sector with lower data pricing. Reliance Jio 4G SIM will get customers free voice calls across the country, while its 4G data tariffs will start at as low as Rs 50/GB from January 2017. The free voice and data services of Reliance Jio 4G SIM can be availed free till December 31, 2016. The company’s data plans start at Rs 19/day for occasional users and Rs 149/month for light data users.

Brokerage House Edelweiss feels if incumbents like Bharti Airtel and Idea Cellular try to match the same packages as Reliance Jio, it will affect their revenues and so expects them to offer discounts selectively. It said,” We do not expect incumbents to match RJio’s unlimited voice offering, but exploit large gaps in price points to target specific users. With only 2 packages priced under Rs 500, which are likely to accommodate maximum number of users, we expect incumbents to offer multiple packages in this band to target different set of users to minimise churn. However, we expect users to perceive more value in RJIO due to unlimited offerings and free usage till Dec’16, leading to strong demand for its services.”

It further added that although RJio’s tariff plans are simple, but there are very few options at lower end of the segment (lesser than Rs 500), which will allow incumbent operators to innovate in pricing. In the process, we may see dip in realisation, but will be critical for arresting subscriber churn.

Echoing the same concerns for Bharti Airtel and Idea Cellular, brokerage house Religare Institutional Research believes that RJio’s launch will put pressure on voice tariffs for incumbents, who would now be prodded to roll out more bundled plans. It said,”While we are already below consensus, we cut our margin estimates for Idea and Bharti further to factor in higher network costs, churn rates and marketing growth.”

Religare has ‘Hold’ rating for Bharti Airtel and Idea Cellular stocks with a new Mar17 target price of Rs 95 for Idea (Rs 104 earlier) and Rs 325 for Bharti (Rs 335 earlier).

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