Analysts have been making a thorough breakdown of Reliance Jio Infocomm’s FY18 report and have come to the conclusion that the Mukesh Ambani led telco is pegging a customer acquisition cost which is unbeatable in the market. The telco’s efficiency is not only seen in the exceptionally low customer acquisition cost but also in the employee expenses which have gone down from Rs 2,700 crore in FY17 to Rs 960 crore in the FY18, a whopping 64% fall. This data, as per the analysts’ report alludes that a large portion has been capitalised. This includes staff costs related to Jio’s broadband and enterprise businesses that haven’t yet commenced operations.
The CLSA pointed out that Jio’s acquisition cost for every new subscriber which it acquires is Rs 129. On the other hand, the third largest telco in the country, Idea Cellular’s report for the same figure is as much as 40% higher at Rs 216.
According to an ET report, the said firm commented that these numbers were low for Reliance Jio because “lesser (number of) Jio postpaid subscribers, a large share of Reliance retail stores and a big share of subscribers doing direct recharges via the company’s MyJio app that has over 150 million downloads”.
Although, the same data regarding the cost of customer acquisition is not yet available for the largest telco of the country, Bharti Airtel, an analyst at Global brokerage said “it would be a challenge to arrive at a like-to-like comparison in Airtel’s subscriber acquisition cost vis-à-vis Jio/Idea, since the latter two telcos primarily operate mobile services in India, unlike Airtel which has a significant Africa operation along with several non-mobile businesses”.
ICICI Securities also remarked on Reliance Jio Infocomm’s FY18 report which revealed some stats of the company. The brokerage firm said, “lower Rs 960 crore employee cost could be due to such cost being charged only for 9 months in FY18 and that employee (costs) relating the company’s fibre-to-the-home (FTTH) and enterprise (services) businesses continue to be capitalised, pending a commercial launch.”
Reliance Jio’s entry into the Indian telecom market has undoubtedly hit other telcos financially. The company had reported a 1.2% sequential increase in its March quarter net profit, where it rested at Rs 510 crore on a 3.6% on-quarter rise in revenue to Rs 7,128 crore. In the second quarter also, Reliance Jio stood strong thanks to the immense response from new subscribers.
On the other hand, Bharti Airtel revealed that the company had hit its first net loss in nearly 15 years in the January-March period. Kumar Mangalam Birla-owned Idea’s net loss also grew to Rs 930.6 crore in the same period from Rs 325.6 crore, a year ago. This unrest was kicked off by Reliance Jio’s entry into the market in September 2016.
Analysts highlighted that Jio’s depreciation rates were stagnant and remained lesser than what the other telcos reported like Airtel and Idea who used the straight-line method (SLM).
CLSA also said that Reliance Jio’s “depreciation rate on likely utilisation of telecom assets at 3%, is much lower than the SLM rates for peers (read: Airtel/Idea)”.?? In a note which ET saw, the brokerage firm had written “Jio’s depreciation rate for plant & machinery in only 3% vs the likely rate of 11-12% for peers that use the straight-line method,” the firm further added “42% of Jio’s fixed assets were funded by parent (read: RIL) with the rest coming from debt and deferred payments”.
IDFC, on the other hand, remarked: “Jio’s commitments on contracts to be executed, but not paid for, stood at Rs 34,450 crore (in FY18), compared to Rs 17,500 crore in FY17, which reflect upcoming capex”.
It was IDFC’s saying that Jio’s FY18 annual report shows company’s high capital intensity and continued expansion of capital employed to fund business expansion.??Another brokerage firm ICICI Securities remarked “Rs 24,000 crore revenue had been received in advance from Reliance Retail,” which clarified that the subsidiary of the company is acting as the sole distributor of Jio products.
Arpit spends his day closely following the telecom and tech industry. A music connoisseur and a night owl, he also takes a deep interest in the Indian technology start-up scene and spends rest of his time spilling poetry and stories on paper.