Is Jio ‘overpriced’ or a ‘long-term Buy’? The Street is waiting with bated breath to see if the listing of the Mukesh Ambani-led telecom major ring in Diwali early on D’Street. The GMP has been holding steady around 22%. Most market observers see it fairly valued at current levels and are betting on the long-term prospects of the telecom sector in India.
Here is a quick look at how leading market gurus value Jio Platforms and expectations going forward.
Speaking on the possible listing price, market veteran Arun Kejriwal pointed out that “the subscription tells you that the demand that has been generated is far greater than what people were talking about. Very clearly, this means that people have liked the story of Jio, and therefore they have subscribed. If I were to hazard a guess, the price on listing day may move within a band of Rs 1,330 to 1,380 a share.”
Speaking on the broad prospects of the telecom sector and top picks in that space, he added that “from a comparable perspective with Airtel, which is the competitor, it has a larger subscriber base or user base, and they are the youngest telecom company in the country, having finished the first decade. So Jio and Airtel would be vying for investors’ money, and of course the other two stocks, Bharti Hexacom and Vodafone Idea, would be a distant third or fourth, respectively.”
Interestingly, the grey market premium for the Jio IPO sustained through the IPO bidding period and has seen significant interest from retail and HNI investors.
Sandip Sabharwal of Asksandipsabharwal.com believes that the real story is in the pricing. “Given that it was not very aggressively priced, it got a very good response. I think the main reasons are that investors believe that going forward there will be greater pricing discipline once Jio gets listed and ARPUs for the entire industry are likely to move up.”
Overall he thinks “the stock is cheap relative to historic valuations as well as what they are doing and the kind of earning growth potential that’s there. Obviously if the listing is good and the stock does well post-listing, it will have a positive rub-off effect on the Reliance Industries stock too.”
The Jio Platforms issue is not just the largest IPO in India’s primary market history but also set to command a significant market cap post-listing.
Deven R Choksey, Founder and MD of DRChoksey Finserv believes that the telecom play may see its market cap double in 5 years, “We will have to be careful about the hype which is getting created during the listing and post listing. I think for long-term investment, you have to be completely convincing. I maintain that in 4.5 to 5 years, the market cap of 10 lakh crore at the IPO is expected to double. So, Jio in most likelihood, I think, would be the second company after Reliance as far as the market cap size is concerned. So, if number one is Reliance industry, number two would be Jio as far as market capitalisation is concerned, post listing.”
Most market observers have given a thumbs up to Jio’s valuations. Market veteran Ambareesh Baliga expects a definite pop on listing day because “in the short-term on listing, yes, there will be a pop-up. And I think it should be about a 10% sort of premium. Valuation-wise, I think they had left some decent amount on the table.”
If you compare with Bharti also, “valuation-wise, it is cheaper. So, there is a gap. The sort of response which they got was much better than what was expected, especially on the institutional side. We need to see whether the institutional demand in the IPO gets converted to demand on listing. If that happens, yes, I think we could see the stock possibly holding up or moving up from there. But then, if you’re talking of long-term, I think this sector is surely going to outperform,” he added.
Dipan Mehta, Director of Elixir Equities, corroborated that view and said that “The price at which the issue has been done is very well priced, in fact slightly underpriced as well at a discount to its closest competitor and peer-to-peer company, Bharti Airtel by at least about 20 to 25 percent. You could expect anywhere from Rs 150 to Rs 250 pop on listing.”
Sneha Poddar, Vice President of Research at Wealth Management firm Motilal Oswal too anticipates “a strong listing-day performance for Jio Platforms, underpinned by robust institutional interest and a tightly constrained initial free float of around 3%, which creates favourable supply-demand dynamics. Furthermore, anticipation of imminent telecom tariff revisions provides positive near-term momentum.”
She pointed out that, “Jio is a compelling long-term accumulation, priced at roughly 11.2x FY28E EV/EBITDA, its valuation is well-supported by industry-leading operating metrics, including 50% plus EBITDA margins, dominant market share in wireless and broadband, and a structural path toward robust cash-flow compounding.”
Overall, most market participants seem almost certain of a 10% kind of pop at debut. Importantly, they believe it will be interesting to see how the Jio Platform stock holds up post listing. Most see it as a key telecom player at a significant discount to its closest peer, Bharti Airtel with room for adequate upside ahead.