Morgan Stanley has maintained an overweight rating on Reliance Industries with a target price of ₹2926, implying an upside of 12% from the CMP. The stock is currently trading at Rs. 2552.
Reliance may gain from the TRAI's lower spectrum prices and easier rollout obligations, according to Morgan Stanley. It also says that reducing spectrum pricing for 5G and other bands by 30–50% will be beneficial.
Key highlights of Spectrum
Reserve pricing for various bands are lowered between 20% and 50% vs the last reserve pricing in 2021 auctions. The pricing is for 20 year license period (30 year spectrum pricing is 1.5x that of the 20-year auction reserve price).
Recommended enhancement of time period for rollout obligations (coverage of 90% can be done in a 2 year time period vs 1 year time period earlier) to facilitate new entrants.
Currently, RIL has 50% of the spectrum in the 2300MHz range and the rest in the 800Mhz and 1800MHz range, it says.
RIL had acquired 208MHz FDD and 280MHz TDD spectrum for US$7.7bn in 2021, increasing its owned spectrum footprint by 55% and the average spectrum life to 15.5 years.
"We currently assume the US $10 billion for RIL to be spent on 5G rollout over the next three years, with spectrum being 40% of total Capex. If spectrum pricing is closer to the regulatory reserve price, we see 5G investments being more backloaded vs. the current assumption of being more frontloaded. Also, with 60% of RIL Jio's network fiberised, we see limited Capex on the non-radio side as well, "says Morgan Stanley.
Morgan Stanley noted some of the upside risks for RIL, which include tightening global refining and chemical markets as the global cost curve inflects, rising market share and reduced competitive intensity in the telecom industry, and partnerships in new energy businesses.
However, it expects the following downside risks: a ban on single-use plastic will hurt margins in the medium term; a delay in monetizing its energy and telecom assets; and execution hiccups with new energy investments.
Reliance Jio reported a net profit of Rs. 3,615 crore for the December quarter, up 10% year on year. It was Rs. 3,291 crore in the last financial year.
Jio's revenue increased by 5% to Rs. 19,347 crore in the December quarter, up from Rs. 18,492 crore in the previous year.
The average revenue per user (ARPU) during the quarter stood at 151.6 per subscriber per month as against 143.6 in the September quarter.
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