How far away are Reliance Jio, Retail IPOs; this brokerage takes a guess, check revised target price

Following the stake sale in Jio Platforms, Mukesh Ambani’s RIL has shifted its focus to Reliance Retail. Sanford C Bernstein has maintained an outperform rating on Reliance Industries Ltd shares and raised its target price to Rs 2,470, translating to over 12 per cent upside from current levels. The research and brokerage firm expects a break-up of the company in the next 3-4 years through an initial public offering (IPO) of the Jio and Retail business segments, which it believes should unlock additional shareholder value.

Yesterday, RIL announced that KKR will invest Rs 5,550 crore into Reliance Retail Ventures (RRVL) for 1.28 per cent stake. In just 23 days, the oil to telecom conglomerate has secured an investment of Rs 13,050 crore for an exchange of 3.03 per cent in its retail business. According to Bernstein, Jio continues to grow strongly and gain share. “We see the potential of ARPUs increasing sharply and drive EBITDA margins to expand to 50 per cent by 2025,” it said.

Bernstein noted that Jio is expected to reach 48 per cent subscriber market share and 47 per cent revenue market share in the next five years. So far this year, with back to back investments from global technology investors in Jio Platforms, the company has raised a combined Rs 1.52 lakh crore, including Rs 33,737 crore investment from Google, for an exchange of 32.97 per cent. Earlier this week, Reliance Jio unveiled five new JioPostPaid plus plans starting at Rs 399 which will go up to Rs 1,499. Under the Rs 399 plan, the company is offering 75 GB data, unlimited voice and SMS, Netflix, Amazon Prime and Disney+ Hotstar VIP subscription, and 200 GB data rollover.

Bernstein added that Jio has delivered solid growth in subscribers and ARPU in Q1FY21. Digital EBIT grew 53 per cent on-year and 7 per cent sequentially to Rs 47.1 billion. EBIT margin rose to 44 per cent. Reliance Jio subscribers have reached a new high of 398.3 million at the end of Q1FY21 with a net increase of 9.9 million subscribers during the quarter.

“We expect Jio to gain share and continued market share losses for Vodafone. Jio and Bharti have gained on 4G transitions at the expense of Vodafone,” the brokerage firm added. The AGR verdict will limit Vodafone ability to invest in modernising the network. “Industry ARPUs declined post entry of Jio and we expect this to expand as more subscribers use 4G and use additional digital apps,” it said.