RIL upmove isn't over yet, Jio could take it higher
ET Intelligence group: Reliance Industries (RIL), India's largest private sector company by net profit, has gained 26% on the BSE over the past three months. The rally is expected to continue considering that the more-than-expected rate of subscriber retention by its telecom arm, Reliance Jio, is likely to reduce the extent of future operating loss.
Jio added 100 million subscribers in the record time. Also, it was able to retain 72% of the total subscribers which will turn payee from July. Analysts had earlier expected just over 40% retention rate.
The higher retention rate is likely to lower expected loss from Jio in the current and next fiscal, which may in turn improve RIL's earnings. Currently, analysts expect a loss of `25-30 per share for FY18 and Rs 11-15 per share for FY19 from Jio. The contribution of Jio in the consolidated operating margin before depreciation and amortisation (EBITDA margin) of RIL is expected to touch 22% in FY20 from expected 8% in FY18.
To retain subscribers, Jio has extended the free services offer, which may result in a revenue loss of `5,000 crore assuming average revenue per user (ARPU) of `250 (compared with Rs 303 for 1GB plan per day offered by the company). The extended period will give more time to improve upon the service quality. Jio plans to add more towers to ease congestion.
Apart from telecom, RIL's petrochemicals division is also expected to report momentum given the commencement of several big petrochemical and refinery projects such as off-gas cracker, petcoke gasification and ethane import. This will lower the capital intensity of the company and improve cash flow, profits and may prompt the company to increase dividend payout. The current dividend payout is one of the lowest among the major global energy companies.
The pick-up in earning momentum from core segments of petrochemicals and refinery, and the telecom venture is expected to generate consolidated EBITDA growth of 19% between FY16 and FY20 compared with just 1% between FY11 and FY16.
Jio added 100 million subscribers in the record time. Also, it was able to retain 72% of the total subscribers which will turn payee from July. Analysts had earlier expected just over 40% retention rate.
The higher retention rate is likely to lower expected loss from Jio in the current and next fiscal, which may in turn improve RIL's earnings. Currently, analysts expect a loss of `25-30 per share for FY18 and Rs 11-15 per share for FY19 from Jio. The contribution of Jio in the consolidated operating margin before depreciation and amortisation (EBITDA margin) of RIL is expected to touch 22% in FY20 from expected 8% in FY18.
To retain subscribers, Jio has extended the free services offer, which may result in a revenue loss of `5,000 crore assuming average revenue per user (ARPU) of `250 (compared with Rs 303 for 1GB plan per day offered by the company). The extended period will give more time to improve upon the service quality. Jio plans to add more towers to ease congestion.
Apart from telecom, RIL's petrochemicals division is also expected to report momentum given the commencement of several big petrochemical and refinery projects such as off-gas cracker, petcoke gasification and ethane import. This will lower the capital intensity of the company and improve cash flow, profits and may prompt the company to increase dividend payout. The current dividend payout is one of the lowest among the major global energy companies.
The pick-up in earning momentum from core segments of petrochemicals and refinery, and the telecom venture is expected to generate consolidated EBITDA growth of 19% between FY16 and FY20 compared with just 1% between FY11 and FY16.
