R-Jio has announced new unlimited plans, raising tariffs by ~17-25% on popular pre-paid plans and by ~17% on entry-level postpaid plans. The tariff hike is largely in line with our expectations (20% from June 2024) and is already built into our estimates. Further, R-Jio has also restricted unlimited 5G data usage to 2GB/day and above plans (versus Rs239 and above plans earlier), which could potentially lead to up-trading by higher data consumers. While the quantum of tariff hikes is in line with our estimates, R-Jio taking the lead in raising tariffs and shifting focus to improving returns on investments is a sentimental positive. We expect Bharti and Vi to also raise tariffs soon.
R-Jio hikes tariffs by ~17-25% on popular plans; largely in line with expectations
After a long pause (since December 2021), R-Jio has taken the lead in raising unlimited prepaid plan tariffs. R-Jio has increased tariffs by ~17-25% on popular prepaid plans and by ~17% (or Rs50/month) on entry-level postpaid plans. However, R-Jio has kept the tariffs for Jiophone and JioBharat phone users unchanged. The blended tariff increase of ~20% is broadly in line with our expectations and is already built into our estimates. The new tariffs are effective July 3, 2024, and the complete flow-through of tariff hikes is expected by December 2024. We expect Bharti and Vi to also raise tariffs soon.
R-Jio taking a lead on tariff hikes bodes well for the industry
In the last two rounds of tariff hikes, Vi (Dec 2019) and Bharti (Dec 2021) took the lead, while R-Jio was the last one to raise tariffs. Unlike, Bharti and Vi, who have been very vocal on the need for industry tariff repair, R-Jio has not been upfront about the need for industry-wide tariff hikes. However, as we noted earlier, the need for R-Jio to raise tariffs was equally (if not more) pressing, given: 1) its larger 5G investments; and 2) further moderation in RoCEs and FCF. While the quantum and timing of tariff hikes is in line with our estimates, R-Jio taking the lead on raising tariffs is a sentimental positive for the telecom industry.
Unlimited 5G allowance cap to 2GB/d and above plans could lead to up-trading
Further, R-Jio has now restricted unlimited 5G data allowance to 2GB/day and above plans versus Rs239 (1.5GB/d-28 days) and above plans earlier. This move could potentially lead to up-trading to the 2GB/day plan by higher data-consuming users and provide some monetization on 5G.
Overall customer outgo on telecom services could increase by ~Rs475 bn
If Bharti and Vi were to follow R-Jio with hikes in similar quantum, overall customer outgo on telecom services (inclusive of tax) could increase by ~Rs475 bn annually (assuming not much down-trading/subscriber churn). Telecom spends as % of GDP would only inch up to 0.88% (from ~0.8%), but still significantly below ~1.4% of GDP prior to the R-Jio launch. Incremental revenue and EBITDA for the three private operators could inch up by ~Rs400 bn (18%) and ~Rs300 bn (~25%), respectively. Our earnings and FV remain unchanged for now, as we await the extent of tariff hikes from Bharti and Vi.
Shares of Reliance Industries Limited was last trading in BSE at Rs. 3131.85 as compared to the previous close of Rs. 3061.10. The total number of shares traded during the day was 1032891 in over 64567 trades.
The stock hit an intraday high of Rs. 3161.45 and intraday low of 3060.95. The net turnover during the day was Rs. 3228906833.00. |
