RIL stock expected to rally upto 29% after jio price hike

Reliance Industries Limited (RIL) share price increased by 1.73% or 27 points, Rs 1,579.80 compared to the previous close of Rs 1552.55 on BSE. Their stocks rose more than 30% in value since September of this year. Reliance Jio a subsidiary of RIL recently announced a price hike of 35%, exciting brokerages across the globe. CSLA (Credit Lyonnais Securities Asia), a Hong Kong based brokerage raised their target price for RIL to ₹2100 from ₹1710.

The price hikes are expected to boost revenues, Goldman Sachs estimates RIL earnings (EBITDA) to increase up to 20 % for FY21. Jio’s planned tariffs still undercut the competition by ₹50 for monthly plans (min ₹199) and ₹100 (max ₹599) for 3-month plans. The new plans are to be offered at a 20% discount to its existing subscribers helping them maintain their competitive position in the market and gain more market share. Estimated subscribers are expected to rise from 307 million in FY19 to 463 million in FY21.

CSLA analysts expects Jio’s operating profit (EBIT) to more than double from ₹37920 crore in FY21 compared to ₹15096 last year, a margin of 38.9%. The higher revenues are expected at a steady cost basis increasing expected margins (profit) to over 48%. Interconnect costs are also trending down as their all-in-one mobile plans absorb these costs while raising the subscriber base. These margins are expected to increase their cash flow up to ₹11700 crore which if used to bring down debt can improve their debt to operating profit ratio which is currently 3 times.

RIL’s oil refining business is also expected to see higher returns as complex refiners will be the biggest beneficiaries of IMO 2020 regulation. The International Maritime Organisation (IMO) has ruled that from 1 January 2020, marine sector emissions in international waters be slashed. Since RIL has the highest refining capacity in India, Goldman Sachs expect their margins to increase from $5 per barrel to $9 per barrel in Q3 2020.

RIL is currently the only company in India with market capitalisation of over ₹10 trillion. Jio is the only telecom in India operating at a profit. This will only increase as JIo moves closer to gaining a complete monopoly. It is a dangerous sign for the future of the telecom industry of India, but if you are an investor in the capital market, its time to open your wallet to Mr. Ambani.