Million dollar baby! Infant Reliance Jio set to give peers many sleepless nights


NEW DELHI: Carpe Diem! Yes, this is what the domestic telecom sensation Reliance Jio seems to go by as it aims to attain 50 per cent market share by FY21.

The telecom arm of Reliance IndustriesBSE -0.01 %, which debuted in September last year, has already set a benchmark by hitting a subscriber base of 100 million in record 170 days. And with aggressive plans in place, it looks set to raise the bar, giving sleepless nights to the incumbents.

The company is heavily banking on building significant data capacity and triggering price elasticity for data demand.

At Jio’s first analyst meet last week, the company management indicated that currently about 1b GB/month data is getting consumed on Jio and it will have the capacity to offer about 4b GB data per month by the end of FY17. According to the management, it should be able to cater to 60 per cent of estimated data demand at 6b GB per month by FY21.

“In our view, among the incumbent operators, Bharti AirtelBSE -0.23 % and the Vodafone-Idea combine should be able to match RJio’s capacity,” brokerage Motilal OswalBSE -0.16 % said in its sectoral report.

RJio believes data capacity will determine revenue market share. Its huge data capacity (estimated to reach 60 per cent of FY21E data capacity over next one year) should allow it to garner a high market share.

The management is targeting a whopping 50 per cent revenue share and 50 per cent Ebitda margin by FY21, garnering high-teens RoCE, the report said.

This apart, the management’s industry growth estimates highlighted that the company was looking at an Arpu
accretion in the market, shifting from price/volume to subscriber/Arpu metrics.

Arpu stands for average revenue per user, which is defined as the total revenue divided by the number of subscribers.

Commenting on the shift to calculate Arpu, the brokerage said despite unlimited offering, if it is shifted from the traditional volume/pricing to subscriber/Arpu metrics, RJio’s Arpu-accretive price plan is a big positive for the market.

The brokerage expects RJio to turn profitable sooner than expected. In its words, “Our revenue estimates for FY18E and FY19E at Rs 223 billion and Rs 319 billion factor in an Arpu of Rs 225 and Rs 240, respectively. This is approximately 50 per cent more than the overall industry and 30 per cent more than Bharti’s (currently highest Arpu), based on RJio’s higher price plans and value offerings,” it said.

“With a high fixed cost structure, our Arpu revision (with the end of free usage) indicates that RJio should reach Ebitda profitability of Rs 27.4 billion by FY19, earlier than our previous expectation of FY20. This propels our DCF (discounted cash flow) value/share at Rs 110 per share v/s previous estimate of Rs 19 per share,” it said.

The brokerage maintains a positive stance on the telecom sector in the long run, but says near-term earnings may remain under pressure.

“For FY17 and FY18, we expect Bharti India’s wireless revenue to remain flat and Idea’s revenue to decline marginally by 1 per cent,” it says.

“We build in a recovery in the first half of FY18 on the basis of a 30-40 per cent churnout of RJio subscribers. However, we believe Ebitda recovery could be subdued. Subsequently, we factor in Ebitda decline of 5-8 per cent for Bharti India wireless and Idea in FY18. Bharti is trading at about 7.5 times EV/Ebitda on FY18E, after factoring in the entire impact,” the report said.