Jio catches market off-guard, but the best is yet to come

Moneycontrol Research

Analysts were closely watching out for two key data points in Reliance Industries September earnings. One was the gross refining margin and the other was the losses in its telecom subsidiary Jio.

The company met market expectations on refining margins but positively surprised the market by posting a profit at the earnings before interest and tax (EBIT) level in its telecom operations. Since its launch in September 2016, it was for the first time that Jio’s financial numbers were made public.

Jio, a late entrant in the telecom space, took the sector by storm with tariff rates way below competition. The aggressive pricing helped the company build a customer base of 138.6 million users within a year.

Surprisingly, despite the aggressive pricing, Reliance has been able to post average revenue per user (ARPU) of Rs 156.4 as compared to Rs 154 of market leader Bharti Airtel. The management is confident of improving its ARPU further, which will help the company report profits sooner than most analysts expect.

For the September quarter, Jio reported revenues of Rs 6,147 crore and a marginal loss of Rs 270.59 crore. The company posted an operating profit of Rs 1,443 crore at an operating margin of 23.5 percent.

The numbers highlighted the changing dynamics of the telecom sector with data now taking center stage. Total wireless data traffic in Reliance Jio’s network was 378 crore GB. High data usage in the Reliance Jio’s network helped the country reach the highest per capita data consumption of 9.62 GB per user per month in the world. With 80 percent of the country’s data capacity, a large chunk of the growth in per capita numbers can be attributed to Reliance Jio.

Jio’s coverage area is likely to spread to 95 percent of the country’s population by 2018, making its network greater than that of any 2G player in the country. As its reach spreads, Jio’s revenues are expected to increase further with a corresponding increase in ARPU driven by value-added services.

The drop in interconnect usage charges (IUC) and a substantial improvement in its service quality with less than 0.4 percent call drops are likely to boost Reliance Jio’s numbers, according to analysts. The company has announced bookings of JioPhone, which were stopped earlier because of unprecedented demand that will add to its subscriber base.

Analysts have started upgrading their earnings estimates after seeing the first set of numbers this quarter. With value-added services and products expected to be launched in future and Reliance Jio’s numbers will continue to be the most awaited one among Reliance Industries different business.