Reliance Jio Launch and Its Impact on Reliance Communications Share Price

The future of Reliance Jio looks promising, with potential to significantly affect the share price of Reliance Industries. As of now, the exact impact on the share price remains uncertain, as everything in the stock market is dependent on the company's performance and moves.

Market Position and Future Prospects

Reliance Jio has been making strides in the Indian telecommunications market with its strong network base. In the coming 4-5 years, there is a high likelihood that Reliance Jio will cover a large portion of the consumer base in India. Although it will take a few years for the company to turn profitable, the large user base will contribute to significant long-term revenue. This will undoubtedly affect other major players in the sector such as Aircel, Idea, and Airtel, which will find it increasingly difficult to compete due to their weaker signal strength compared to Reliance Jio.

Service Offerings and Market Impact

Reliance Jio's service offerings include free calls, zero roaming charges, and various cost-effective data plans. These benefits are likely to significantly boost Jio's user base and market share in the coming years. While existing service providers may not be able to match Jio's unlimited voice offering, they will likely exploit price gaps to attract specific user segments. With only two packages priced under Rs 500 accommodating most potential users, incumbents are expected to offer multiple packages in this price range to cater to different user groups and minimize churn.

Short-term and Long-term Market Reactions

The short-term reactions to the Jio launch, such as the 6-11% drop in share prices of Bharti and Idea, are understandable given the competitive nature of the telecommunications industry. However, we would need to observe a reduction in competitive intensity before turning positive on the sector. Currently, Bharti and Idea are trading at 5.3x and 5.1x FY18E EV/EBITDA, respectively. Maintaining a hold rating with target prices of Rs 360 and Rs 110 for Bharti and Idea respectively, we believe that it will take time for the market to fully digest the impact of Jio.

Long-term, the introduction of Jio signals a new era in Indian telecommunications. The unlimited offerings and free usage until December 2016 have led to strong demand for Jio's services. As a result, Jio's share of the market is expected to grow, driving a positive impact on the overall market. However, it is important to monitor the competitive landscape and the evolving market dynamics to accurately predict the future trends.

Conclusion: Despite the initial challenges, the launch of Reliance Jio has the potential to reshape the Indian telecommunications market, affecting both incumbent players and the overall share prices of the sector. As we move forward, the market will continue to evolve, presenting both opportunities and challenges for all players involved.