RIL stock rallies on Jio tariff hike, gains 2.5% to hit all-time high

Foreign brokerage Credit Suisse believes that Jio’s tariff hike could bring an annual cash flow in excess of $1.5 billion

After falling just short of the Rs 10-trillion mark intra-day, the Reliance Industries (RIL) stock ended with gains of 2.5 per cent.

Gains in the stock, which hit its all-time high, came on the back of expectations that tariff hikes by Reliance Jio would lead to higher cash flows and boost its consolidated bottom line.

Foreign brokerage Credit Suisse believes that Jio’s tariff hike could bring an annual cash flow in excess of $1.5 billion.

Analysts at the research firm highlight that the decision to undertake tariff hikes has come earlier than expected, and will lead to an earnings per share increase in the range of 12-15 per cent in FY20 and FY21.

Though Jio’s subscriber addition dropped to 7 million in September — the lowest in two years — analysts expect this to improve.

Edelweiss Research indicated that the dip in subscriber addition was largely on account of the consumption slowdown in rural markets, and that it could revive given the price cut of Jiophone to Rs 699 from Rs 1,100. Jiophone sales were strong in the festival season in October.

Despite the decision to hike prices, analysts believe Jio will continue to gain market share. Vodafone Idea and Airtel have limited room to significantly invest in expanding their networks. The two telcos had cut their opex and capex in the September quarter and reduced their FY20 targets.

Even though Jio has a substantial lead over the incumbents in 4G network, it continues to outspend its peers on the capex front.

The other trigger for the stock is the debt reshuffling and strategic divestment plan for Jio’s digital assets. This, coupled with peaking out of capex cycle and tariff rationalisation, is expected to lead to higher earnings and multiples, believe analysts at Emkay Research.

The brokerage also expects the refining outlook to improve for RIL, given the International Maritime Organisation’s regulations on sulphur dioxide emissions and commercialisation of gassifiers.