Ambani's Phone Pricing Helps Reliance Regain No. 2 India Ranking

Updated on
  • Reliance tops HDFC Bank as second-largest company by value
  • Tariffs are attractive to retain half of all users: analyst

Reliance Regains Rank After Phone Pricing

Reliance Industries Ltd. regained its position as India’s second most-valuable company after its shares had the steepest gain in eight years.

The stock surged 11 percent at the close, valuing the company at 3.92 trillion rupees ($59 billion), as investors cheered Chairman Mukesh Ambani’s decision to end free data plans at his phone venture from April 1. HDFC Bank Ltd. had overtaken Reliance on Friday after a 3.7 percent gain in its shares. The lender dropped for the first time in nine days on Wednesday.

“Investor concerns that Reliance may extend the free mobile-phone services have faded,” Rajendra Prasad, an analyst at Karvy Stock Broking Ltd., said by phone. “Analysts are making back-of-the-hand calculations” on when Reliance Jio Infocomm will turn profitable, he said.

Prasad said he will revise his price target of 1,192 rupees. Other analysts may also need to change their price forecasts after the stock rose above the one-year consensus price target for the first time since June 2014. Reliance’s weighting in the S&P BSE Sensex rose a notch to 7.56 percent, surpassing software exporter Infosys Ltd. as the fourth-biggest company by weight, data compiled by Bloomberg. Tata Consultancy Services Ltd. is India’s top company by market value.

Reliance, which has spent $25 billion on its fourth generation, wireless data network, started to offer services free for an introductory period from September. The extension of the offer to March 31 had raised concerns among investors including HDFC Securities Ltd. and Sanford C. Bernstein about the viability of the business. Jio has signed up 100 million users so far.

Those concerns eased after Ambani said Tuesday customers will have the option of signing up for a Jio Prime membership at 99 rupees ($1.48) for one year, plus a monthly charge of 303 rupees, to continue using unlimited services for a year.

Average Revenue

The monthly charges are attractive enough to allow retention of at least 50 percent of its customer base, Tarun Lakhotia, an analyst at Kotak Institutional Equities said in a report to clients Wednesday.

Reliance’s tariff plan will put a “cap” on revenue earned from higher-end subscribers at telecom operators, reducing average revenue earned from each customer, Credit Suisse said in a note to clients Wednesday. Rivals Bharti Airtel Ltd. and Vodafone Group Plc’s Indian unit have slashed data tariffs by as much as 67 percent to counter Ambani’s Jio.

“From Jio’s perspective, it would now be interesting to see how they manage the transition to paid usage, without seeing a sharp drop off in subscriber base,” Credit Suisse analysts Sunil Tirumalai and Viral Shah said in the note. “The next 30 days would probably be used to gauge interest levels to these new price points, as also to market these to existing subscribers.”

— With assistance by Ravil Shirodkar, and Ameya Karve

(Adds HDFC Bank share performance in second paragraph.)
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