Mukesh Ambani's Phone Pricing Helps Reliance Regain No. 2 India Ranking

Reliance Industries Ltd. regained its position as India’s second most-valuable company after its shares posted their biggest advance in eight years. The stock surged 11 per cent at the close on Wednesday, valuing the company at 3.92 trillion rupees ($59 billion), as investors cheered Chairman Mukesh Ambani’s decision to end free data plans at his phone venture from April. HDFC Bank Ltd. on Friday had overtaken Reliance after a 3.7 per cent advance in its shares.

“Investor concerns that Reliance may extend the free mobile-phone services have faded,” Rajendra Prasad, an analyst at Karvy Stock Broking Ltd., said by phone. “Analysts are making back-of-the-hand calculations” on when Reliance Jio Infocomm will turn profitable, he said.
Other analysts may also need to change their price forecasts after the stock rose above the one-year consensus price target for the first time since June 2014. Reliance’s weighting in the S&P BSE Sensex rose a notch to 7.56 per cent, surpassing software exporter Infosys Ltd. as the fourth-biggest company on the gauge by index weight, according to data compiled by Bloomberg.

Tata Consultancy Services Ltd. is India’s most-valuable company.

Reliance, which has spent $25 billion on its fourth generation, wireless data network, started to offer services free for an introductory period from September last year. The extension of the offer to March 31 had raised concerns among investors including HDFC Securities Ltd. and Sanford C. Bernstein about the viability of the business. Reliance Jio Infocomm Ltd. has signed up 100 million customers so far.

Those concerns eased after Ambani said Tuesday customers will have the option of signing up for a Jio Prime membership at 99 rupees ($1.48) for one year, plus a monthly charge of 303 rupees, to continue using unlimited services for a year.

Average Revenue
The monthly charges are attractive enough to allow retention of at least 50 percent of its customer base, Tarun Lakhotia, an analyst at Kotak Institutional Equities said in a report to clients Wednesday.

Reliance’s tariff plan will put a “cap” on revenue earned from higher-end subscribers at telecom operators, reducing average revenue earned from each customer, Credit Suisse said in a note to clients Wednesday. Rivals Bharti Airtel Ltd. and Vodafone Group Plc’s Indian unit have slashed data tariffs by as much as 67 percent to counter Ambani’s Jio.

“From Jio’s perspective, it would now be interesting to see how they manage the transition to paid usage, without seeing a sharp drop off in subscriber base,” Credit Suisse analysts Sunil Tirumalai and Viral Shah said in the note. “The next 30 days would probably be used to gauge interest levels to these new price points, as also to market these to existing subscribers.”

With assistance from Ameya Karve and Ravil Shirodkar.