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Why investors of Reliance Industries should fear Reliance Jio's launch

Mukesh Ambani may have cheered consumers with unprecedented data and voice call offers on its telecom venture Reliance Jio, the growth prospects of RIL, experts believe, will remain under pressure.

Aprajita Sharma September 2, 2016 | Updated 14:04 IST
Why investors of Reliance Industries should fear Reliance Jio's launch
Photo: Reuters

What is good for consumers may not always benefit investors.

Mukesh Ambani, Chairman, Reliance Industries may have cheered consumers with unprecedented data and voice call offers on its telecom venture Reliance Jio, the growth prospects of RIL, experts believe, will remain under pressure.

The stock of RIL lost nearly 5 per cent in two days after the announcement of Reliance Jio's launch. 

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"Although the launch of Reliance Jio is a great moment for consumers of the country, it is certainly a do or die situation for the company. The investment to the tune of Rs 150,000 crores needs to generate at least 11.5 per cent return, which is the implicit historical returns on its investments that it had delivered in the past. Therefore, to accumulate net surplus of Rs 17,250 crore per annum seems a herculean task in the near future," said Jimeet Modi, CEO, Samco Securities.

"This is the biggest gamble Reliance has played ever in its history, the success of which will certainly decide the long term prospects for the company," he added.


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Dharmesh Kant, Head - Retail Research, Motilal Oswal Securities also said the earnings per share of RIL will stay under pressure in the short to medium run, but the profit from telecom business may trickle down in the long haul.

"Though, the top line from telecom business will start trickling down in due course, the big concern remains on the timelines of achieving operating break-even point in context of tariff policy deployed," said Kant.

He believes RIL's large part of capital employed in telecom segment (around Rs 1.35 lakh crore) will start delivering revenues.

Meanwhile, RIL management guided that around Rs 1.10 lakh of capital expenditure done in petro chemical segment will become productive by fiscal year 2017 in phased manner.

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