Reliance Jio to Eye New Growth Engines Says Analysts

Dolat Capital says “time is ripe” for the telecom operators to increase the tariffs.

By January 25th, 2021 AT 3:00 PM

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Reliance Jio, the largest wireless operator in India is set to eye “new growth engines” as its subscriber additions “continue to languish,” Motilal Oswal said in a report on Sunday. The report is on the heels of Reliance Industries on Friday announcing its third quarter financial results for the period ended December 31, 2020. Reliance Industries said that its wholly owned subsidiary Jio Platforms registered a 5.3% increase in consolidated revenue in the third quarter with its net profit up by 15.5% in the same period. The company also said that Reliance Jio, the wholly owned subsidiary of Jio Platforms recorded average revenue per user (ARPU) of Rs 151 in its third quarter. In the previous quarter, Reliance Jio is said to have recorded an ARPU of Rs 145.

Reliance Jio “Aggressively” Rolling Out FTTH Products

Motilal Oswal, a firm engaged in the financial services on Sunday said that revenue growth reported by Reliance Jio was largely led by a 4% increase in ARPU. The firm said that the net subscriber addition “slowed” to 5.2 million in the third quarter of the current financial year as compared to 7.3 million in the previous quarter. Motilal Oswal highlighted that the gross subscriber additions stood at 25.1 million in the third quarter as compared to the 27.3 million in the previous quarter.

“The management attributed this to the continued impact of COVID-19 and local issues in certain geographies,” Motilal Oswal said in a report on Sunday.

The firm highlighted that Reliance Jio is “deepening its fiber network and aggressively” rolling out Fiber-to-the-Home (FTTH) products such as Jio Set-Top Box (STB), Jio enterprise solutions and Jio Internet of Things (IoT).

“With a total of INR1.5t raised from global investors, Jio Platforms Ltd (RJio’s holding company) is sitting on a war chest,” Motilal Oswal said. “It is now building capabilities in new-age technologies, developing end-to-end 5G radio, and developing core network solutions.”

The firm said that the growth in Reliance Jio user base has “moderated to the mid-single digits from double-digit quarterly growth” in the previous year as the operator has over 400 million subscribers. Motilal Oswal said that among the 750 million to 800 million unique users in the telecom space, 50% may “yet be outside the ambit of smartphone usage.”

“To tap this low ARPU/device user share, RJio – along with Google – may launch a low-cost feature phone device that may prove pivotal to maintaining its subscriber growth momentum in India,” Motilal Oswal said. “However, with low price points and limited success in the subsidy model, it would be a challenge to drive profitable growth through this segment.”

Analyst Says Time Right for Operators to Increase Tariffs

Meanwhile, Dolat Capital, a financial firm engaged in the trading markets on Saturday said that Reliance Jio’s third quarter financial results were “ahead of estimates” due to the “higher than expected ARPU.”

“We remain perplexed with the ARPU improvement in Jio over the last two quarters (Rs 140.5 to Rs 151) in absence of tariff increases,” Dolat Capital said in a report on Saturday. “As per company, it is on account of increased consumer engagement. In our view, it is partly on account of FTTH business revenue pick-up led by higher additions and charging of older customers after initial free-trial offer.”

Similar to Bharti Airtel, Dolat Capital said that Reliance Jio too is “well-poised” to gain from “improving industry scenario” such as rise in ARPU or shutdown of Vodafone Idea.

“With all the three telcos chasing to grab the 4G customers as well as burning cash to maintain the high level of voice mins/data usage per subscriber; we believe the time is ripe for all the telcos to raise the tariff table and compete at higher price points,” Dolat Capital said. “This is inevitable in our view.”

Further, IDBI Capital on Monday said in a report that Reliance Jio is set to “fly with many wings” despite the operator witnessing a slow down in subscriber growth.

“Though, [the] pace of net subscriber addition has slowed down but still it has many levers to grow, mainly a tariff hikes in [the] near term,” IDBI Capital said in a report on Monday. “Also, faster ramp-up of an attractive FTTH, integrated solutions for Enterprises and IoT solution for Home are few other levers which would continue to drive Jio profits.”

Born in India, Yogesh loves to travel and has lived in multiple countries including New Zealand and Canada. His bylines can be found on various newspapers and blogs throughout the world, including Vancouver Sun, Surrey Now-Leader, Daily Hive , Investing News Network and Rach F1.

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