Reliance Jio Recent Offer Brings Misplaced Stock Reaction: BofA Securities

Reliance Jio’s cashback offer is a part of ‘Maha Cashback Offer’ at JioMart and Reliance Industries Limited (RIL) is only looking to cross sell here. The cashback offered will only be applicable on JioMart and other retail platforms.

Highlights

  • BofA said that it expects the tariff hikes to kick in around 3 to 6 months with major ARPU flow coming through FY23 onwards.
  • BofA said that the cashback offer from Reliance Jio won’t impact the competitors in a major way since it is directly not related to the recharges.
  • Reliance Jio’s cashback offer is a part of ‘Maha Cashback Offer’ at JioMart and Reliance Industries Limited (RIL) is only looking to cross sell here.

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Reliance Jio

Reliance Jio recently introduced a new offer giving 20% cashback to the users with three of its prepaid plans worth Rs 249, Rs 555, and Rs 599. BofA Securities, a global research firm, has said that Jio’s recent offers have brought unwarranted stock reactions. For the unaware, the stock prices of Bharti Airtel and Vodafone Idea (Vi) have seen a negative impact during the last few days.

But the thing is, Reliance Jio’s cashback offer is a part of the ‘Maha Cashback Offer’ at JioMart and Reliance Industries Limited (RIL) is only looking to cross-sell here. The cashback offer will only be applicable on JioMart and other retail platforms. This won’t affect the telco’s average revenue per user (ARPU) since people are essentially paying the same amount, and the cashback is also not for recharges. Further, BofA said that 2GB daily data packs of the telco aren’t that popular, which means the cashback offer isn’t going to make much of an impact for the telco.

BofA said that the cashback offer from Reliance Jio wouldn’t impact the competitors in a major way since it is directly not related to the recharges.

BofA Securities Optimistic on Tariff Hikes

BofA said that it expects the tariff hikes to kick in around 3 to 6 months, with major ARPU flow coming through FY23 onwards. The research firm believes that the telcos need to go for 25% plus tariff hikes to ensure that the industry sustains.

BofA further said that ARPU levels need to go high in the medium and long-term to ensure that Vodafone Idea (Vi) survives. This will benefit not only the telcos but also the government. The Indian government takes license fees and spectrum usage charges (SUC) from the telcos on the basis of their revenues. Thus, the higher the ARPU, the higher the revenues, and ultimately the government will earn more.

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