Jio IPO price band: Valuation cut for RIL, Bharti Airtel looks attractive; target prices

Nomura said RIL's 66.4 per cent stake in Jio Platforms after the potential listing would be worth Rs 481-506 per Reliance share, equivalent to 41-43 per cent of its current share price. Applying a 20 per cent holding company discount brings the value down to Rs 385-405 per share, or 33-35 per cent of Reliance's share price as of October 9.

This compares with Nomura's current equity valuation of Rs 541 per Reliance share for Jio Platforms in its sum-of-the-parts (SOTP) valuation, which does not factor in a holding company discount.

"At the upper end of the IPO price band of Rs 1,119/share, the total valuation gap is Rs 136 per share. However, Reliance stock has already corrected sharply in the run-up to Jio listing (down 26 per cent YTD vs NIFTY down 14 per cent), and we think the current price of Reliance more than compensates for the slightly lower valuation and holding discount (combined impact of Rs 136/share on Reliance share price)," Nomura said.

Nomura said peer Bharti Airtel Ltd is attractively valued and better positioned to benefit from tariff hikes. It maintained a Buy rating on Bharti Airtel with a target price of Rs 2,360 per share. Its target price for Reliance is Rs 1,690 per share.

Following Jio's listing, the telecom operator will likely need to demonstrate growth to public shareholders, Nomura said.

"With the period of easy subscriber gains likely ending, tariff hikes might become the primary driver of earnings growth. Bharti Airtel remains our top pick in the sector, due to its higher proportion of premium subscribers, which should insulate it from downtrading and subscriber attrition following the anticipated tariff hike in 3QFY27F (expected after Jio's listing). We believe Bharti's current valuation discount to Jio is unjustified and expect this gap to narrow, at minimum, once Jio goes public," Nomura said.

During the July 2024 tariff hike, Bharti Airtel recorded the strongest average revenue per user (ARPU) growth among peers, followed by Jio. Jio's weaker performance was likely due to significant subscriber downgrading among its predominantly value-conscious customer base, which has the highest proportion of non-data users, the brokerage said.

"Bharti also demonstrated the strongest subscriber retention post-tariff hike, adding 2 per cent subscribers over the subsequent three quarters. In contrast, Jio lost 0.3 per cent of subscribers during the same period," it said.

Nomura estimated Jio's implied FY28F EV/Ebitda multiple at 10.5-10.9 times at the proposed IPO valuation, below the Street's target multiple of 12 times for both Bharti Airtel and Jio.

"Bharti's India business (adjusted for Bharti's investments in Indus Towers, Airtel Africa, and other investments) is currently valued at a market cap of Rs 9.5 lakh crore. Adjusting for net debt, we arrive at an implied FY28F EV/Ebitda of 9.2 times for Bharti's India telecom business, which is at a discount of 12-15 per cent compared with Jio's implied FY28F EV/Ebitda multiple of 10.5-10.9 times," Nomura said.