Reliance Industries - Tariff Hike Of ~20% Largely Inline; Maintain Hold: Systematix

Systematix Research Report

Reliance Jio has launched its long-awaited new tariff plan, slated to take effect from July 3rd, 2024, featuring price increases ranging from 12.5% to 26.7% across various plans, with an average tariff hike of approximately 19-20%.

Jio, established in 2016, experienced its first significant tariff increase in December 2019, which raised prices by 20-40%. Another round of tariff hikes followed in December 2021, resulting in an increase of nearly 20%.

These adjustments align with earlier expectations, as we had previously indicated that a subsequent tariff hike was anticipated post-elections.

Additionally, in the recent spectrum auction by the DoT, Jio secured an additional 1800MHz band spectrum (at a cost of Rs 9.7 billion) for Bihar and West Bengal

Our projections foresee a 13% average revenue per user increase for FY25 and 6% for FY26, in line with recent tariff adjustments, with benefits expected mainly in H2 FY25 and extending into FY26. Estimated ARPU stands at Rs 205/Rs 218 for FY25E/FY26E, up from Rs 181.4 in FY24.

Ebitda growth forecasts remain unchanged at 39% for FY25E and 16% for FY26E. The industry is poised to benefit from the tariff hike, with similar adjustments anticipated from competitors like Bharti Airtel and Vodafone Idea.

We project an Ebitda/profit after tax compound annual growth rate of 10.2%/12.2% from FY24 to FY26E. Reflecting positive sentiment, our SOTP-based target price rises to Rs 3,050 from Rs 2,950, supported by a higher enterprise value/Ebitda multiple of 15 times for FY26E, up from 14 times, for the Jio business.

Recent declines in GRM and a retail sector slowdown to keep the upside potential limited. Consequently, we maintain a Hold recommendation on the stock.

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