Global brokerage house CLSA retained its bullish view on Reliance Industries, the country's most valued company, and Lemon Tree Hotels, the largest mid-priced hotel chain in India.
After tariff hike, the research house increased its target price on Reliance Industries to Rs 2,010 (from Rs 1,710 earlier), implying 30.6 percent potential upside from current levels following expectations of a good growth in telecom business with a strong subscriber base.
"Despite tariff hike, Jio is at a 7-20 percent discount to its competition," said the brokerage.
Reliance Jio on December 4 unveiled tariffs for its new all-in-one plans to be effective December 6 and announced up to 35 percent hike in its tariff. The new plans will provide up to 300 percent more benefits compared to the earlier all-in-one plans.
Jio's recharge plans will still be lower than those of the rivals. For instance, Jio users of the highest-selling recharge plan can save around 15 percent to 25 percent when compared to Bharti Airtel and Vodafone Idea.
The Rs 129 Jio monthly recharge plan offers 2GB Internet data per month. For Vodafone Idea and Bharti Airtel users, a similar offer comes for Rs 149 and Rs 148, respectively.
This is the first time in five years that service-providers have hiked rates following a tariff war that virtually made voice calls free in 2016 and brought down data prices by 95 percent—from Rs 269 per GB in 2014 to Rs 11.78 per GB presently.
The tariff hike would boost EBITDA by $1.1-1.3 billion and see a good chance of further upside to Jio's profit, CLSA said, raising EPS estimate by 1-8 percent.
"Strong profit on International Maritime Organisation (IMO), tariff hikes and Aramco deals are triggers going ahead," it said.
"Tariff hike on the Jio Phone is still awaited and average revenue per user (ARPU) may be higher as customers may prefer 28-day over 84-day plans."
CLSA also has a buy call on Lemon Tree Hotels, with a target price of Rs 80, implying a 29 percent potential upside from current levels.
"Channel checks suggest Q3FY20 has been strong for hotels. In Mumbai, Hyderabad, Delhi, occupancy levels already exceeded 70 percent. Increasing occupancy levels are setting the base for average daily rates (ADR) hikes going ahead," the brokerage said.
"We expect mid to high-single digit ADR hikes for company in Q3."
The company’s share in lucrative markets such as Mumbai was expected to increase, CLSA said. Premium valuation is justified given its high-growth plans, it said.
Lemon Tree operates 7,900 rooms in 78 hotels, including Keys hotels, across 46 cities under its various brands--Aurika Hotels St Resorts, Lemon Tree Premier, Lemon Tree Hotels, Red Fox Hotels, Keys Prima, Keys Select and Keys Lite.
“As the pipeline becomes operational, it will be operating 105 hotels with around 10,500 rooms across 67 cities in India and abroad," the company said in its BSE filing.
In the last three months, Reliance Industries share price rallied 29 percent and Lemon Tree gained 22 percent.
Disclaimers: Reliance Industries Ltd, which owns Jio, is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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