Jio boost sparks 11% rally in RIL shares : 23 Feb 2017

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Shares of Reliance Industries (RIL) soared 11 per cent, the most since May 2009, a day after its telecom unit Jio Infocomm announced it would end seven months of free services and start charging customers. The value of shares of the Mukesh Ambani-owned firm gained Rs 119.4, or 10.97 per cent, to Rs 1,207.65— a level last seen on May 29, 2008.

Market players said the move to start charging from April 1 has helped alleviate concerns over the viability of its telecom business and raised hopes that it would start contributing to profits from the next financial year.

“We believe this is a significant development as it will likely lead to profit and loss recognition of Jio in FY18 and also provide much better visibility on its true potential, which has been difficult to gauge under the current free offering,” said Jefferies in a note.

The stock was the biggest gainer in the benchmark Sensex and Nifty indices on Wednesday and also the most-traded, with volumes of Rs 3,820 crore.

The rally in Reliance, which is the second-most valuable company in India, helped the benchmark indices close higher for a fifth straight day and took the Nifty within kissing distance of a new record high. Reliance contributed 216 points to the Sensex gains, helping it close 103 points higher. The 50-share Nifty index added 19 points to close at 8,926.9, just 73 points below its record close of 9,000.

Jio has been offering free unlimited services since September 2016. The introductory offer was to end in December 2016, but the company extended it till March 2017. The move raised concerns among brokerages, including HDFC Securities and Sanford Bernstein, over the viability of Reliance’s telecom foray.

Chairman Ambani on Tuesday announced Jio has crossed the 100-million customer mark. It had spent about Rs 1.5 lakh crore on its fourth-generation mobile foray. Ambani said it would continue to offer unlimited services for another year for a monthly charge of Rs 303. The offer will be available only for customers who sign up for the Jio Prime membership by paying Rs 100 before March 31.

Tarun Lakhotia, analyst at Kotak Institutional Equities, said Jio’s monthly pricing was attractive enough to allow retention of at least 50 per cent of its customer base.

Analysts at Credit Suisse said Reliance’s tariff plan will put a “cap” on revenue earned from higher-end subscribers at rival telecom operators, such as Bharti Airtel, Idea and Vodafone. Analysts said the average revenues earned from each by the industry could go down.

Shares of Airtel ended 0.5 per cent lower, while Idea surged four per cent on buzz of the merger with Vodafone happening soon. RIL added Rs 38,732 crore in market capitalisation, almost the market value of Idea.

Analysts said Airtel and Vodafone, which have already slashed prices to counter Ambani’s Jio, have to further lower their tariffs on data and voice.

“From Jio’s perspective, it would now be interesting to see how they manage the transition to paid usage, without seeing a sharp drop in subscriber base,” Credit Suisse analysts Sunil Tirumalai and Viral Shah said in the note. “The next 30 days would probably be used to gauge interest levels to these new price points, as also to market these to existing subscribers.”

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