Reliance Jio Needs Tariff Hikes, Financials Weak Say Analysts

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Reliance Jio, the largest wireless operator in India needs tariff hikes as its financials are “weak,” analysts said. Jio Platforms, a subsidiary of Reliance Industries recorded Rs 3508 crore as consolidated net profit for the quarter ended March 31, 2021, translating to a 47.5% year-over-year (YoY) increase. The development was shared by Reliance Industries on Friday with the company also highlighting that Jio Platforms recorded Rs 18,278 crore as consolidated revenue in its fourth quarter of the previous financial year. Further, Reliance Jio, the wholly-owned subsidiary of Jio Platforms recorded 31 million gross subscriber additions in the fourth quarter of the previous financial year, Reliance Industries said on Friday.

Analysts Say Reliance Jio Financials Weak

Crucially, the largest wireless operator in India recorded average revenue per user (ARPU) of Rs 138.2 per month during the quarter. In the third quarter of the previous financial year, Reliance Jio recorded an ARPU of Rs 151, with the company highlighting that the dip in the fourth quarter is due to the Bill and Keep regime that the industry transitioned to, effective January 1, 2021.

Dolat Capital on Friday said that the 1.4% quarter-on-quarter (QoQ)increase in net revenue reported by Reliance Jio in the fourth quarter was “one of the slowest,” since the company started reporting financials. The financial firm engaged in the trading markets said that the ARPU reported by Reliance Jio was lower than its estimate of Rs 142, largely “due to negative impact” of interconnect usage charges (IUC) abolition.

Similarly, ICICI Securities, a subsidiary of ICICI Bank on Sunday said that the fourth-quarter earnings reported by Reliance Jio had “multiple misses on the revenue front.” The firm in a report also said that the revenue growth reported by the operator was its “slowest” with its mobile revenues, in particular, had only around 1% QoQ growth after adjusting the Fibre-to-the-Home (FTTH) performance.

ICICI Securities said that Reliance Jio’s net debt in FY21 including the deferred spectrum liability was at Rs 29,000 crores as compared to Rs 33,200 crores in the previous financial year. The firm highlighted that the operator bid for spectrum worth Rs 57,100 crores in the 2021 March auction and that the operator agreed to buy Rs 1500 crores worth of spectrum from Bharti Airtel. Crucially, it was highlighted that Reliance Jio’s net debt would jump to Rs 72,600 crores if one takes into account the “entire committed spectrum payment.”

“We estimate network cost inflation to remain high even in the next two years at least, not considering 5G rollout,” ICICI Securities said in its report. “In case of low revenue growth as in Q4FY21, we see Reliance Jio running a risk of significant earnings decline in FY22. We believe the company will also need tariff hikes to maintain earnings growth momentum, which we have built-in for H2FY22E.”

Reliance Jio Data, Voice Minutes Usage Growth “Healthy”

Jio

Meanwhile, Prabhudas Lilladher, a research-based financial services organization on Saturday said that there is a “strong growth traction” in Jio Platforms as the company expects growth in digital business.

“We expect sharp growth for digital services business, as and how data demand accelerates and new pricing intervention gathers pace,” Prabhudas Lilladher said in a report.

Motilal Oswal Financial Services, an Indian diversified financial services firm on Saturday said that it expects the operator to register an 11% revenue growth over the next two financial years. Crucially, the firm highlighted that tariff hikes along with “big device launches in the low-cost feature phone market” could “significantly improve” its estimates. The financial services firm said that the operator “continues to aggressively target” user additions “despite achieving” the largest user base in the “shortest time.”

“While the pace of subscriber additions has slowed (possibly in the Smartphone category) in the past few quarters, Reliance Jio targets feature phone subscribers with an addressable market of 300m users,” Motilal Oswal Financial Services said in its report.

The firm also highlighted that the operator has already revised its JioPhone bundle plans in March and is “working on multiple device options to accelerate the transition.”

“While this could restrict ARPU improvement (given the focus on subscriber-led growth), we believe the differentiated product in the Smartphone category could still offer scope for a tariff hike,” Motilal Oswal said.

Dolat Capital also said that the subscriber additions recorded by the operator in its fourth-quarter were “partly driven” by the revised JioPhone schemes.

“Jio is well-poised to benefit from [the] improving industry scenario of increase in ARPU and/or shutdown of VIL,” Dolat Capital said in its report. “In the short-term, in absence of tariff increase and due to modest subscriber additions due to covid; Reliance Jio (and thus RIL) may go through time-correction. That said, [the] medium-term story remains significantly healthy.”

The firm also said that the data and the minutes' usage growth recorded by Reliance Jio in the fourth quarter were “healthy” as compared to the earlier quarters. It has to be noted that the operator in a release said that the total data traffic in the fourth quarter was at 1668 crore GB, translating to a 26.7% YoY growth. Further, the total voice traffic recorded by Reliance Jio in the fourth quarter was at 102,290 crore minutes, translating to a 17.9% YoY growth.

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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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