Reliance Industries shares find favour after Jio tariff hike. What brokerages say?

Shares of Reliance Industries (RIL) were trading more than 2% higher in Monday's early deals after the Mukesh Ambani-led group's telecom subsidiary Jio announced price hike in its prepaid tariffs from next month, following its rivals Bharti Airtel and Vodafone Idea (VIL). 

The tariff hikes entail JioPhone Plan, Unlimited Plans, and data add on up to 21% hike. Last week, Airtel and Vodafone Idea had announced up to 25% hike in their prepaid plans tariffs to improve financials.

Reliance Jio has raised prepaid smartphone tariffs by 20%. The hike has restored Jio's tariff discount to Bharti. With most JioPhone tariffs unchanged, Jio's subscriber traction should remain strong, believe analysts at Jefferies. Jio's willingness to increase smartphone tariffs bodes well for its longer-term revenue/margin outlook, they added.

“Jio's current move of increasing tariffs for smartphone users indicates that it wants to improve realizations while maintaining a 10-15% discount to Bharti in smartphone segment. This is positive for revenue and margin outlook for both Bharti and Jio,” Jefferies' note stated.

Bharti and VIL have consistently indicated that the tariff hikes have to continue periodically to ensure that the ARPUs reach a sustainable level of around ₹300. RJio has not given any official word on it but the key to improvement in ROCE and sector valuation rerating will be to see continued improvement to achieve 30-40% higher ARPUs from the revised ARPU levels, said brokerage house Motilal Oswal. 

"RJio tariff hike is across all price plans including on Jiophone’s lowest 28 day plan. This is better than our expectation of a tariff hike in only the smartphone category. Thus the tariff hike may lead to incremental revenue/EBITDA. This will also increase the overall ARPU," the brokerage said. Motilal Oswal's Buy rating on RIL shares come with a target price of ₹2,900 apiece.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.