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    Jio IPO, if it happens, could be a game-changer for telecom, RIL

    Synopsis

    If Jio wants to show good profitability, it can consider increasing pricing. Bharti and Vodafone are anyway eager to increase ARPU. So, that could be a game changer for Jio as well as both Vodafone and Bharti Airtel, says Abhimanyu Sofat

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    From a valuation perspective, today people are valuing Jio at around Rs 750-800 per share for Reliance but as a standalone entity, it could get a 15% higher valuation because of the IPO, says Abhimanyu Sofat, VP-Research, IIFL.

    On Tata Motors & other auto majors
    In case of Tata Motors, two things caused the stock to go up yesterday. One was the buzz in the market about some deal with Tesla which the company denied at the end of the day and the second is the very strong numbers on the retail side for JLR. There was almost 20% growth in the China market.

    The stock has been languishing for a long period. I would recommend buying the stocks below the Rs 200 level because we still are in early days in terms of understanding whether this growth is sustainable or not. But broadly speaking, going forward, the challenge that Tata Motors is going to face is on the margin side because raw material prices have been going up and that could be a big problem for the company.

    Having said that, on the domestic side in HCVs, next year is going to be pretty robust in terms of overall demand because of the scrappage of vehicles. Clearly next year is going to be fantastic in terms of the overall HCV sales but the price at which you enter the stock will be critical.

    On Jio IPO possibility
    It could really change the tiredness with the Reliance stock. On Monday, the stock went below the Rs 1,900 level. Going forward, the critical thing would be whether over the next three to four months, we are going to see ARPU increases. If Jio wants to do an initial pubic offer (IPO) and if they want to show good profitability, they can consider increasing pricing. If they do it, Bharti and Vodafone are anyways eager to increase ARPU. So, that could be a game changer for Jio as well as both Vodafone and Bharti Airtel.

    The entire strategy of Jio where they are doing some work with Microsoft on the cloud side, considering what we have seen in the US, people are being unhappy with AWS, the kind of work that they are doing with Google on the new phone which is coming up. The IPO could be a very interesting thing and it could be a very good tech pure play company with such a large scale and I am sure that IPO could do really well going forward.

    From a valuation perspective, today people are valuing it at around Rs 750-800 per share for Reliance but going forward as a standalone entity, you could see a 15% higher valuation being given because of the IPO.

    Everything is going Reliance’s way and yet the stock is falling?
    In this quarter also, the estimates for standalone profit shows close to 27% decline. That is because the GRM number this time is expected to be close to around $6.5 while it was over $9 a year back. There are some kind of challenges.

    On the digital side, one clear challenge that Jio is facing is that it becomes a company which is trying to make a digital hub strategy for a lot of online retail properties. There is Saavn with a lot of media assets and they have been number one in that particular segment. There are pockets of it. How they monetise it either through Jio Mart or a lot of different kinds of interlinked connections which the company is trying to build, it is one concern that investors are clearly having.

    In addition to that, the other concern was over the Saudi Aramco deal still not happening over the last one and a half years. So, there are a lot of things that people were expecting in addition to the hike in terms of ARPU which would now come if Jio comes out with an IPO. For all these reasons, the Reliance stock has not been doing well over the last couple of months.

    What is your view on the real estate sector and what are your preferences, if any?
    In case of Maharashtra, what the government hit a home run by cutting the stamp duty and the traction that we saw last quarter and even in the initial 10 days in January clearly suggests that sales are up on a year-on-year basis. A lot of savings as well as lower interest rates are helping people to buy properties at lower prices and that is helping out all the players in the sector.

    With regard to which kind of stocks to buy, Brigade Enterprises is one of our key favourites because the growth trajectory is going to be pretty good in the Bangalore market with a lot of IT people working from home. That is one company which should do really well.

    Even stocks like Oberoi Realty should do well because a lot of consolidation is happening in the industry where the larger players are going to eat up the market share of the mid level players. That stock also should do pretty well going forward. If somebody is looking more from an yield perspective, there is no harm for people for regular income perspective to look at the REITs which are available of both Mindspace as well as for Embassy. Both these REITs provide attractive yield so investors can look at taking those if you have a two to three year kind of a perspective.
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    3 Comments on this Story

    Revah Goa10 days ago
    IPO? Wait for the mother of all frauds to be unleashed on gullible Indian people..
    If Indian's want somebody's personal wealth to increase then to hell with such an IPO...
    John Mathew10 days ago
    Don’t forget about people’s participation as a true & tricky sustainable factor ever in business & businesses.
    Gaurav11 days ago
    Secrets of the Millionaire Mind:
    amzn.to/35QGAqI
    Read before you invest. Insights on Bharti Airtel Ltd.. Explore Now
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