Reliance Industries Ltd (RIL) became the first Indian company to cross Rs6 trillion market capitalisation after its shares surged over 75% so far this year and hit a fresh lifetime high on Thursday.
The stock closed 0.78% up at Rs947.25 on BSE. It rose as much as 1.94% to hit an all-time high of Rs958.20. Currently, its market cap is at Rs6.02 trillion.
The recent rally in the stock was due to tariff hike by its telecom arm Reliance Jio which, analysts expect, will improve the company’s profitability. Jio increased its tariff by 15% for its popular 84-day plan at Rs459 from 19 October, under which subscribers get 1GB 4G data at high speed per day.
“RIL’s 15-20% hike in telecom tariffs raises confidence in our bullish (versus consensus) earnings estimates. It reduces drag on energy returns from telecom with sustainable ROE (return on equity) rising to 15%—among the top quartile in our global energy coverage,” said Morgan Stanley in a note to its investors.
On 13 October, Reliance Jio reported a profit at earnings before interest and tax (Ebit) level even though it ended up with a net loss of Rs271 crore. The telecom unit reported revenue of Rs6,147 crore and Ebit of Rs260 crore.
“Jio should be able to maintain the revenue traction in the forthcoming quarters while reduction in IUC (inter-connection usage charges) will help in keeping costs under control. We find that Jio is increasingly growing in confidence about its network and product quality and the pace of ARPU (average revenue per user) increases should sustain as the value offered by Jio still far exceeds the incumbents’ plans by a significant margin,” said PhilipCapital in a note.
The stock added nearly Rs3 trillion market cap since April after its telecom arm Reliance Jio started charging its customers.
Analysts believe that tariff hike is positive for rivals like Bharti, Vodafone and Idea as they may be able to raise prices as well which may help reduce profit. The Indian telecom industry is under pressure due to huge competition after Reliance Jio’s entry in the market.
“The Indian telecom industry is seeing huge amount of consolidation and with decreasing choices for the subscribers the operators will compete on quality of service over the medium to long term. This could mean sustained increase in ARPU over the medium to long term. We are highly optimistic on the prospects of the Indian telecom industry,” PhilipCapital added.
Bharti Airtel Ltd closed 0.96% down to Rs510.55, while Idea Cellular Ltd declined 2.27% to settle at Rs96.80. Both the stocks surged nearly 32% so far this month. The BSE Sensex ended 0.14% higher to 33,147.13 points.