RIL tariff concerns look overdone, expect 36% upside, says Jefferies

To factor in the possible delay in tariff hikes, the brokerage’s analysts have cut Jio's FY23-25 earnings estimates by 1-6%. (Representational image)

Reliance Industries’ investors' concerns over a delay in telecom tariff hike “look overdone”, brokerage and research firm Jefferies has said in its latest report.

Telecom tariff hikes may be delayed till after the general elections in May 2024 but when they are affected, they could quickly change the market structure in favour of RIL, the report said.

“While there is a growing concern that telecom tariff hikes may only take place after general elections… we note this could lead to accelerated market share shifts and in theory an effective duopoly which could add Rs93/sh upside potential,” the brokerage report said.

Reliance Jio is the telecom arm of billionaire Mukesh Ambani-led Reliance Industries.

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Analysts pointed out that the delay in hikes also seems unlikely because of cash-flow pressures being felt by Vodafone Idea Limited.

“We note that the Govt's recent decision to convert a portion of VIL's debt to equity has made it the largest equity stakeholder in VIL. This is likely to align its interests towards a tariff hike to support VIL. Moreover, this is also likely to shift Bharti/Jio's focus away from market share gains towards market expansion,” they wrote.

Jefferies’ analysts have cut Jio's FY23-25 earnings estimates by 1-6 percent to factor in the delay in the hike but they reiterated their “buy” call and said there is a 36 percent upside to the stock with a revised price target of Rs 3,060.

The analysts added that even if the tariff hike doesn’t materialise till March 2025, there is a 28 percent upside to the stock at Rs 2,872.

At 12.13 pm, the stock was trading at Rs 2,229.50 on the National Stock Exchange, down 0.81 percent from the previous close.

The brokerage’s investment outlook on the stock comes from four factors: Sustainable competitive advantage on scale economics, cost leadership, financial strength; Rs 2 trillion free-cash flow invested in consumer businesses that created Rs 9 trillion in equity value; new growth engines with large addressable markets, including digital in Jio, e-comm in Reliance Retail, crude oil-to-chemicals in oil-to-chemicals and new-energy business and interesting optionalities with financial services foray and partnerships with Meta and Google.

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