Jio to touch 100 mn subscribers in next 3 years: Edelweiss

Reliance Industries’ quarterly earnings beat estimates with standalone profit rising 17.9 percent year-on-year (YoY) to Rs 7,704 crore while the income from operations fell 0.3 percent YoY to Rs 64,344 crore.Speaking to CNBC-TV18, Jal Irani of Edelweiss Financial Services said that it has upgraded the company’s target price by 10 percent to Rs 1,410 per share.Edelweiss is constructive on the company’s Jio business. Reliance Jio is likely to touch 100 million subscribers in next three years, Irani says.Till September this year, Jio had 16 million subscribers and it continues to add 1-1.2 million subscribers on daily basis.Below is the verbatim transcript of Jal Irani’s interview to Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Your key takeaway, there seems to be an unbelievable beat even in the gross refining margin (GRMs) of the company it has done better than what most of the analysts in the street expected. Your thoughts?A: On the GRMs, it has been largely in line with our expectations at least because especially of the lack of inventory gains, which was there at the last quarter but more importantly the petrochemical division especially polyesters and PVC has done very well where you had a significant 13 percent quarter-on-quarter (Q-o-Q) margin surge matched with similar volume growth. So, that is where the significant difference has come in the polyester and PVC division basically.Latha: What therefore is your view of the stock itself? Do you think it has legs to run harder, higher?A: We recently upgraded our target price by 10 percent and our target price now is Rs 1,401 which is by far the highest on the street. Our conviction level is significantly higher on the Jio business essentially our thought is that the market is giving a 30-50 percent discount on the Jio business on the invested capital there and essentially a lot of things have fallen into place in the Jio business in the last two years and therefore despite reducing the discount to 20 percent and there is a detailed model behind that that we believe that a discount of only about 20 percent is justified.In fact our assumptions also on this business are fairly conservative. So, if you look at average revenue per unit (ARPU) assumption at Rs 167 a share this is way below the targeted ARPUs that Reliance itself is targeting of Rs 300 as the ARPU. So, we think that the market is extremely conservative. We are also conservative and there is a significant positive surprises rolling out.Sonia: So, what are you forecasting as far as subscribers are concerned. Currently they have about 1.5 million subscribers in the quarter gone by. What are you estimating by the end of FY17-FY18 and how does that factor into your numbers?A: You have got the subscriber numbers wrong. At the end of September, if I am not mistaken they have already got 16 million subscribers and they are adding 1-1.2 million subscribers on a daily basis. This is entirely a pull factor and there is barely a sort of marketing push at the moment. We are forecasting subscriber numbers to go up to about 100 million in the next three years. Essentially at the rate at which they are adding 1 million subscribers per day they could be reaching numbers much faster.Of course, one has to keep in mind that to that extent at the moment there is a three month free period and a lot of subscribers are taking advantage of that. So, the same pace of on boarding if it is maintained or not that will be something we will have to see going forward.Sonia: In fact they are adding at a very fast pace, it is 1.5 million subscribers per day, that is what I was referring to.A: 1-1.2 million subscribers per day.Sonia: Just coming back to the base business what is your expectation as far as GRMs are concerned from the level of 10.1 this quarter what can they do say over the next two quarters?A: So, GRMs, after a bad quarter in September, have bounced back very strongly but more importantly rather than looking at on a quarterly basis one needs to look at the demand-supply scenario especially in India. India currently exports 22 percent of its surplus products and in fact Reliance exports about two-thirds. Now domestic demand is very strong growing at 8 percent per annum. In fact, that 8 percent demand growth of India translates into -- on a global basis India accounts for one fourth of the incremental demand growth globally. What this is resulting in is lower exportable surpluses and the more you sell domestically, your margins are roughly about a dollar and half higher. So, it is beyond the global demand supply scenario and beyond the short-term trend more importantly we are looking at India potentially becoming even a net importer in the next 5-7 years and that is going to drive profit growth as well significantly.Latha: Today itself -- I know you are not a short term price forecaster -- but the stock moved a distance away from its Rs 1,100 recent high. Do you think scaling that should now be very easy?A: Like you said at least I am not a short term forecaster but perhaps if I can quote derivatives team which is very good they have identified that the lower band of the stock is progressively moving up and is potentially reaching an inflection point and we will have to see when this inflection point reaches what happens to the stock whether you get a break out or not but frankly like you said that is not my area of expertise. We have got a very good team here who handles these things.(Disclosure: Network 18, which publishes moneycontrol.com, is a part of the Reliance Group.)