RIL jumps 10 per cent on mega asset sale, debt cut plan

Mumbai: Reliance Industries Ltd (RIL) gained over 10 per cent, its best single-day gain in a decade, on Tuesday, as investors and brokerages gave a thumbs-up to the Mukesh Ambani-led company’s plans for $16-billion asset sales, debt reduction and disruptive telecom expansion, along with its five-year road map for unlocking values in the retail and telecom businesses. The plans were unveiled at its 42nd annual general meeting on Monday.

After rising 12.09 per cent intra-day, the RIL shares closed at Rs 1,275 on the BSE, up 9.72 per cent, adding over Rs 71,600 crore to its market-cap and taking the firm’s market valuation to over Rs 8.08 lakh crore. RIL’s gain was in sharp contrast to the dip in all but two stocks in the 30-share Sensex pack. The benchmark index fell 624 points, or 1. 66 per cent.

As the RIL stock soared, shares of its telecom rivals Bharati Airtel and Vodafone Idea plunged 5.28 per cent and 6.34 per cent, as investors expected heightened competition in the sector, once Reliance Jio launches broadband services from next month.

Brokerages raised RIL’s target price after factoring in the impacts of Monday’s announcements.

Brokerage Emkay Global said, "We have a Hold rating on RIL with Rs 1,375 as target price, the Aramco deal implies Rs 100 per share upside. The target of 15 per cent 5-year Ebitda CAGR (annual growth in operating profit), zero net debt in 1.5 years, Jio/Retail listing in five years and higher dividend/buyback add to the positivity."

Smaller direct-to-home (DTH) and Multiplex operator may now have to face intense competition to from Jio’s broadband.

Reliance Jio's bundled broadband services plans may leave DTH firms most vulnerable, and work out to be neutral to slight negative for Bharti Airtel, as it raises competitive heat in corporate and home internet space, a Bank of America Merrill Lynch report said.

The report did not rule some pressure on Bharti's broadband revenue triggered by Jio's entry in the space. However, the impact is likely to be limited, as the overall fixed broadband penetration remains low at less than eight per cent and large greenfield opportunities remain, it said.

Reliance Jio’s broadband services Jio Fiber will offer free voice calls for life from landlines, 100 mbps minimum broadband speed at subscription starting from Rs 700 a month and free HD TV set on a commitment to an annual plan. This, analysts said, will compete with the services of Hathway, Den and GTPL Hathway home broadband services offered at Rs 350-400 per month but at lower speeds of 50 Mbps.

Multiplex theatre players too could face competition from Mukesh Ambani's disruptive concept of watching new movies at home on the release day, as part of Jio Fiber’s offering. This service will be launched in mid-2020.

Shares of multiplex operators PVR and Inox Leisure fell 4.10 per cent and 4.22 per cent, respectively, on the BSE.

However, theatre operators said that theatrical and at-home are two completely different experiences and each has their own places. Both these experiences have co-existed and prospered for decades and will continue to do so in the future, PVR said in a BSE filing, adding that it is extremely buoyant about cinema exhibition's growth prospects.