Berstein assigns 'Outperform' on RIL, Rs 3,2100 as price target; says Reliance Jio on path to 500 million subscribers

The brokerage said Reliance Jio under Jio Platforms, one of the subsidiaries of RIL, is the undisputed scale player in Indian telecom sector since its launch in September 2016, acquiring over 100 million customers in less than a year

Brokerage Berstein on Wednesday assigned "Outperform" rating on Reliance Industries (RIL) and noted Rs 3,2100 as price target for the company. Accordingly, the brokerage also said Reliance Jio under Jio Platforms, one of the subsidiaries of RIL, is the undisputed scale player in Indian telecom sector since its launch in September 2016, acquiring over 100 million customers in less than a year.

It said Reliance Jio is on the path to 500 million subscribers. As the subscriber base approaches 500 million (currently it is 433 million) and market share reaches 50 per cent, the brokerage had studied the evolving market structure with the viability of "Vodafone Idea under question", price repair and potential IPO plans. The brokerage cited four reasons - on the basis of market structure, pricing repair, revival of Vodafone-Idea remains challenging and Jio Strategic investors - why it thought Jio, which is on the path to 500 million subscribers, is the undisputed scale player in Indian telecom.

On the lines of market structure, the Indian telecom market has changed significantly from 12 players five years ago to three key private players currently, it said. The market continues to consolidate with Jio and Bharti having 80 per cent share and Vodafone-Idea "losing share".

"We expect further consolidation by FY26 with Jio subscribers' share to reach 48 per cent (496 million) and revenue share of 47 per cent," it added. On pricing repair, it said price war by Jio in 2016 led to collapse of pricing by 95 per cent and reduced average revenue per user (ARPU) for competition by 50 per cent over 2016-2019. Tariff hikes, between 25-30 per cent, starting December 2019 marked a period of pricing discipline for the sector. "While near time tariff hike likely to get pushed out, we expect Jio ARPU to reach Rs 225 by FY26 driven by 5G monetisation," it added.

On the lines of the revival of Vodafone-Idea (VI) remains challenging, It said market share losses of Vodafone-Idea (VI) continue to be driven "by low network investments and delay in fund raise".

VI has lost 15 per cent market share (~190 million subscribers) since June-2016. The company has to service Rs 88 bn in the next 12 months. "Total net debt at Rs 2.2 Tn with the company requiring tariff hikes to service debt repayments," it added. On Jio strategic investors, the brokerage said in 2020, international investors invested USD 20 billion for a 33 per cent stake.

This includes strategic investors (Meta, Google) of 18 per cent and private equity investors namely Vista, KKR, Silverlake, PIF etc, of 15 per cent. "Typical private equity (PE) holding period being four years, we expect some investors to look for an exit (more details likely in AGM in June/July) Investment Implications," it added. More details are likely to surface in annual general meeting (AGM) in June/July, according to Berstein. 

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