Reliance Cashback: ‘Stock Reaction Unwarranted,’ BofA Securities Expects Tariff Hike in 6 Months
The stock market reaction after Reliance Retail had announced cashback offers for Jio prepaid customers, was “unwarranted”, said BofA Securities in a note. Reliance Retail on September 28 introduced a new cashback offer — Jio prepaid users could get cashbacks on recharge of Rs 249, Rs 555, and Rs 599 plans. The offer would only be available for the recharges done via MyJio app or Jio’s official website. The cashback would be credited to a user’s account as JioMart points and can be used across Reliance Retail offerings, the company said in a statement. “This appears to be a part of on-going ‘Maha cashback offer’ at JioMart and RIL is looking to cross-sell here,” BofA Securities said.
The new cashback offer is unlikely to impact the Average Revenue Per Unit (ARPU), analysts added. Explaining the rationale behind it, BofA Securities said, “From Reliance Jio’s perspective, we don’t expect much ARPU impact. This is because 1) Recharge needs to be done initially and in full; cash back is credited later to be used for retail platforms; 2) This offer is valid only to three packs, two of which are 2 GB packs (not as popular as 1.5 GB ones). We think the intent here appears to be upselling.”
“For Jio’s competitors, we also don’t see much impact as cashback is largely used for retail,” it further added.
BofA Securities further said that it would expect an increase in tariff in the next three to six months. “While it’s difficult to forecast the magnitude and exact time of tariff hike, we expect it to be in the next 3-6 months — mainly around/post Diwali where consumer sentiment improves around festive season,” it stated.
Mentioning how the tariff hike will benefit both the telcos and the government, BofA Securities added, “We believe everyone benefits from tariff hikes including the government. This is because with the tariff hikes, government’s license fee/SUC related revenues see an uplift as they are percentage of revenues.”
For investors, BofA Securities said, “In our view consensus is already factoring some tariff hike. We think, telcos need to do 25 per cent tariff hike for market to positively react to this. Maintain Buy on RIL on favorable risk-reward. Our base-case ARPU hike assumption for FY23 for RIL is 15 per cent as full year ARPU flows through then.”
“We increase our FY22-23 EPS for RIL by 1-1 per cent (telco is one of 3 businesses). We also increase retail business to 41X to factor re-rating of retail stocks. Combined this pushes our RIL PO from Rs 2,550 to Rs 2,800,” it added.
For cash strapped Vodafone Idea to survive, the APRU level need to go high in the medium and long term, the analysts mentioned. “Indeed incumbents have maintained the view for long that medium term ARPUs need to be around Rs 200 and long-term to be Rs 300,” it said.
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