Telecom rivals tumble as Reliance Jio extends free services

MUMBAI: Stocks of telecom companies fell up to 6% in intra-day trade on Thursday reacting to the extension of Reliance Jio’s free voice and data services until March 31. Analysts said possible price wars will keep the stocks under pressure over the next couple of months.

Idea Cellular fell 5.9%, Bharti Airtel fell 1.66% and Anil Ambaniowned Reliance Communications fell 5.05% on Thursday.

Reliance Industries bucked the trend, gaining 0.5% to `997.20. The NSE Nifty fell 0.4%. “Stocks have reacted sharply because these telecom companies’ revenues are set to be affected by three more months of free services by Jio. Investors are better advised to avoid the sector,” said Sharad Awasthi, head of research at SPA Securities. “The announcement indicates a more aggressive marketing of Jio than what we have seen in these months.”


Analysts warned that apart from a drag on revenues from the competition posed by Reliance Jio, companies could pump in more capital to provide competitive options to customers.

“We could see more price wars in the coming days. To counter Jio’s freebies, other telecom companies could pre-emptively lower their prices.” said Daljeet Singh Kohli, head of research, IndiaNivesh. “Telecom stocks would definitely be dragged down by this.”

Since the launch of Reliance Jio on September 6 of this year, shares of telecom operators have been under pressure. Idea Cellular has lost 13%, while Reliance Communications has dropped 27.8%. Bharti Airtel managed to recoup most of its losses and is down less than a percent since Jio’s launch.

Analysts said valuations have ceased to matter in the current scenario. “Valuations are attractive but they don’t matter currently. Post March, when Reliance Jio will no longer be a free service, we will have to see how telecom companies price their services.” said Kohli of India Nivesh. Airtel is valued at 22 times its 2017 earnings whereas Idea is valued at 16 times.

“Almost 70-75% of the revenue of telcos comes from voice service and this is set to get hit,” said Rajnath Yadav, telecom analyst at Choice Equity Broking.

“Also cash recharge is dominant in rural areas for pre-paid services, this is also likely to get affected from the demonetisation impact and reflect on current quarter revenues.”