Buy Reliance Industries; target of Rs 1407: Edelweiss

Edelweiss' research report on Reliance Industries

Mr Mukesh Ambani today announced Jio Happy New Year, an extension of free voice and data till March 31, 2017 (from December 31, 2016 announced earlier), but with a data cap of 30GB per month to decongest network. He also announced Jio Money Merchant Solutions with a target of reaching 10mn merchants in 1 month. We believe high acceptability among merchants will be a crucial enabler for strong network effect to succeed in the mobile wallet/payment bank business. This exemplifies Reliance Jio’s (RJIO’s) strategy of cross selling various internet-based services via its ecosystem, as highlighted in our note - Reliance Industries - Betting big on integrated play stratagem. We expect RJIO to garner significant data volume market share even when it becomes a paid service. Maintain ‘BUY’ with target price of INR 1,407.

With over 50mn subscribers in less than 3 months, RJIO has grown faster than Facebook, Skype and Whatsapp and exceeding our March 2017 target of 40mn subscribers. We have raised our FY17E end subscriber forecast to 75mn. Following conclusion of RIL’s ongoing mega capex, we expect FCF to turnaround and RoE to rise. We reiterate ‘BUY/SO’, with a SoTP-based TP of INR 1,407, highest on the Street.