Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,937.5016.0
Stock Analysis, IPO, Mutual Funds, Bonds & More

RJio's tariffs bring welcome change in sentiment for RIL

RIL shareholders' wealth gained Rs 20,000 crore as the markets gradually factored in the contribution of telecom venture towards the company's valuation.

, ET Bureau|
Updated: Sep 19, 2016, 08.20 AM IST
0Comments
RIL shareholders' wealth gained Rs 20,000 crore as the markets gradually factored in the contribution of telecom venture towards the company's valuation.
RIL shareholders' wealth gained Rs 20,000 crore as the markets gradually factored in the contribution of telecom venture towards the company's valuation.
MUMBAI: The market had shrugged off Reliance Industries' colossal $22-billion investment in its telecom venture fearing sub-optimal returns, but the `disruptive as well as profit-focused' tariff, Reliance Jio unveiled in the first week of September, seem to have gradually changed the investors' perception about the telecom venture.

RIL shareholders' wealth gained Rs 20,000 crore in the past two weeks as the markets gradually factored in the contribution of telecom venture towards the company's valuation and the stock recouped its position as the second-most valued Indian company by market capitalisation.

Jio's `Welcome offer', which gives free service until December 2016, is adding nearly 5 lakh subscribers per day . If current subscriber additions sustain, it will have a good chance to bring sizeable subscribers at the end of free service period and may surpass the street expectation of 2.5 crore subscribers by FY17-end before time.

CLSA in a recent report said the popularity of the welcome offer may shift Jio's challenge from subscriber addition to subscriber retention. The company's guidance is to touch subscriber base of 10 crore in a record time. The Street is factoring in a subscriber base of 7 crore, 10 crore and 12.5 crore in the next three fiscals. The key thing investors will be looking for in the coming months is how much it is able to turn free subscribers into the paying subscribers by January 2017 based on their on-board experience, data speed, and coverage.

Jio has also cut unit pricing but focused on maintaining respectable average revenue per user (ARPU) by offering larger packet using its network capacity . Although Jio's plans offer a notable 12-47% cut in unit pricing to `50-95 per GB, they imply monthly ARPU of `430 for any basic data user.This is nearly a 30% premium to current 3G ARPUs. Besides, add-on offer of 1GB to the base plan will translate into the ARPUs quite close to the current 3G APRU. This would mean that Jio tariff will have lower downward risk to projected ARPU of the company. The Street has priced in ARPU between `250 and `300 per month over FY17-21.

The combination of subscriber base and ARPU will determine how the market factors in the telecom venture's contribution to RIL's valuation. Analysts estimate subscriber base of 10 crore with ARPU of `400 per month will translate into the respectable 10% pretax return on capital employed (RoCE).Similarly, on a base of 14 crore subscribers with ARPU of `300 will help Jio earn 10% RoCE.

Many analysts have been ascribing a negative value in the range of $4-7 billion for Jio in the absence of clarity on the company's strategy.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service