Analysts Raise Reliance Jio’s ARPU, Earnings Estimates After Tariff Hike

Analysts upgraded their average revenue per user and earnings estimates for Reliance Jio Infocomm Ltd. after the Mukesh Ambani-led telecom operator hiked prices of its prepaid plans.

Prices of entry-level JioPhone, unlimited voice bundles and data add-ons will be at least 20% costlier than before, effective Dec. 1, the carrier said in a statement on Sunday. That comes days after peers Bharti Airtel Ltd. and Vodafone Idea Ltd. announced a similar tariff hike for prepaid plans.

Shares of Reliance Industries Ltd., the parent of Reliance Jio, gained more than 3.5% in early trade on Monday.

Here’s what analysts have to say about Reliance Jio’s tariff hike…

Jefferies

• The tariff hike has restored Jio’s tariff discount to Bharti Airtel in the prepaid smartphone segment.

• The move indicates that Jio wants to improve realisations while maintaining a 10-15% discount to Bharti Airtel in the smartphone segment.

• The company has raised prices for most plans for smartphone users, it has hiked tariffs for only one of the five JioPhone plans it offers. Therefore, the subscriber traction on JioPhones is likely to remain strong.

• The prepaid smartphone segment forms 75% of Reliance Jio’s revenue and a sharp 20% hike in this segment is ahead of expectations.

• Raises ARPU estimates by 6-7% and expects Jio to have an ARPU of Rs 172 by FY24.

• Raises FY22-24 revenue/Ebitda/profit estimates by 5-23% on the back of higher ARPU estimates and expects Jio to deliver 18-31% CAGR in revenue and profit.

• Remains positive on Bharti Airtel and Jio. Maintains ‘buy’ on Bharti Airtel with a price target of Rs 925 apiece, an upside potential of 25.4%.

Credit Suisse

• The current round of 20-25% tariff hikes will now be sustained with Jio also deciding to participate in the industry repair process.

• Tariff hikes are above expectations and creates upside risks to the estimates.

• If the entire hike translates to ARPU, it would be 18% above our current ARPU estimate for Q4 FY22 for Airtel and 6% above our existing FY23 ARPU estimates.

• Despite tariff hikes, Vi to need another $700-800 million (Rs 5,250-6,000 crore) over the course of the next six months to meet its near-term repayment obligations on non-spectrum debt.

• Maintains preference for Bharti Airtel.

Morgan Stanley

• Jio’s tariffs remain the lowest in the industry. however, some popular 84-day plans have seen a narrower discount vs peers.

• The increased tariffs will be fully reflected in the June 2022 quarter and overall estimate a 35% increase in Jio’s ARPU for FY23 and another 15% increase in FY24.

• Tariff hike should reduce investor concerns on FY23 estimates and will accelerate momentum for an earnings upgrade cycle.

• Expects upside potential in all businesses — energy, digital, and retail.

• Maintains ‘overweight’ on parent Reliance Industries with a price target of Rs 2,925 apiece, an upside potential of 21.2%.

Motilal Oswal

• Jio’s 20% tariff hikes create sustenance of industry tariff hikes taken by peers — Bharti Airtel and Vi.

• The price increase will derive 27% Ebitda upside on 65% incremental Ebitda margin, thus building 26% Ebitda CAGR over FY21-24E.

• The company’s overall ARPU is likely to increase from Rs 145 to Rs 175.

• Rates ‘buy’ on RIL with a target price of Rs 2,900 apiece, an upside potential of 20.2%.