20 September 2017
Oil & Gas
TP: INR941 (+12%)
TRAI boost to RJio; increasing target price
The Telecom Regulatory Authority of India (TRAI) has reduced the interconnect usage
charge (IUC) from 14p/min to 6p/min with effect from 1 October 2017. This would
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
be further reduced to zero from 1 January 2020.
861 / 466
~40% reduction in RJio’s access cost would result in the company’s EBITDA increasing
by 43%/31% in FY19/20.
We also roll over our valuation to September 2018, and increase our target price on
Reliance Industries (RIL) from INR750 to INR950, implying a 13% upside.
Revising RJio’s EBITDA by 43%/30% for FY19/20E led by IUC savings
Financials Snapshot (INR b)
2017 2018E 2019E
2,420 3,237 3,723
EPS Gr. (%)
Shareholding pattern (%)
Jun-17 Mar-17 Jun-16
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Based on the reduction in the IUC rate, RJio’s access cost is revised down by
~INR30b (40%) to INR44b/49b for FY19/20E. Subsequently, we have revised up
our EBITDA estimates for FY19/20E by 43%/31% to INR91b/INR130b. Our
subscriber and ARPU estimates for FY19/20E remains intact at 132m/156m and
Zero IUC by 2020 may not alter the scenario significantly. We believe that, by
2020, a significant proportion (70-75%) of subscribers would be data
subscribers. In the event of complimentary voice offerings, bundled (data and
voice) price plans should protect incumbents’ ARPUs.
RJio could choose market share over profitability
The key question is whether RJio will pass on the benefits to feature phone
subscribers to chase market share or will focus on enhancing profitability.
RJio’s current active subscriber market share stands at 9.6%. We believe RJio
will continue tapering freebies for smartphone subscribers, even as it may
extend discounts to feature phone subscribers to accelerate market share
Based on 43%/31% increase in EBITDA for FY19/20E, we increase our DCF-
based TP to INR190/share (ex. bonus; prior: INR130/share). Our DCF factors in
12% WACC and 2% terminal growth.
Increasing valuation multiples; maintaining Neutral
We have increased the refining and marketing multiples from 6x to 7x, driven
largely by the better performance exhibited by the company in its refining
segment in an adverse environment, due to its better risk and yield/crude
Key triggers: (i) how the company further unfolds its strategy in RJio and (ii)
how other core expansions take shape.
The stock trades at 12.2x standalone FY19E P/E and 10.4x standalone FY19E
EV/EBITDA. We roll over to September 2018, and increase our target price on
RIL from INR750 to INR941, implying a 12% upside. Maintain
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Swarnendu Bhushan – Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com); +91 22 6129 1529
Abhinil Dahiwale – Research Analyst
(Abhinil.Dahiwale@motilaloswal.com); +91 22 3980 4309