RIL Rallies As Analysts Get Clarity Over Reliance Jio’s Future Revenue
Markets cheer clarity over Reliance Jio’s revenue from April 1, 2017.
Reliance Industries Ltd.’s (RIL) share price rose as much as 10 percent as of 2:00 pm on Wednesday, after its chairman Mukesh Ambani, on Tuesday, said its subsidiary, Reliance Jio Infocomm Ltd., will start charging subscribers from April 1, 2017. Reliance Jio begun commercial operations on September 5, 2016, but will be offering free services till March 31, 2017.
Ambani also unveiled a new ‘Jio Prime Offer’ for customers who adopt Jio before March 31, 2017. The users will have the option of signing up for Jio Prime at Rs 99, plus a monthly charge of Rs 303, to continue using existing unlimited services for a year.
The monthly charge of Rs 303 is substantially higher than the industry average revenue per user (ARPU) of Rs 150-180 a month, which might create further pressure on other telecom service providers according to brokerage house, PhillipCapital (India).
The new plan seems competitive and might put further pressure on high ARPU (average revenue per user) customer of the incumbents.PhillipCapital (India)
The company added 100 million customers in 170 days on the back of its free services, but another brokerage house, Credit Suisse said it would be interesting to see how Jio “manages the transition to paid usage, without seeing a sharp drop off in subscriber base”.
Reliance Jio, which claims to be world’s largest startup, could pull RIL’s profit down by 26 percent in financial year 2018, says foreign brokerage house Jefferies.
With the company deciding to charge for its services from the next financial year, it will have to start maintaining a profit and loss account (P&L) and provide a better financial clarity.
P&L recognition of (Reliance) Jio in FY18...will provide much better visibility on its true potential, which has been difficult to gauge under the current free offering.Jefferies On Reliance Industries
As the company was offering free services, all the expenses were being capitalised as investments.
RIL’s consolidated net profit in FY18, which will include Reliance Jio’s accounts, is estimated at Rs 22,184.2 crore by Jefferies. This number is 26 percent lower than the estimated annual profit of Rs 30,073.5 crore for financial year 2016-17.
The 26 percent fall in consolidated net profit could be the company’s biggest year-on-year decline in the last 30 years, according to data compiled by BloombergQuint.
Motilal Oswal Securities Ltd. also expects Reliance Jio Infocomm to report a Rs 14,189.2 crore loss in the next financial year. The Indian brokerage house expects the telecom unit to continue posting net losses till financial year 2020-21. It should turn EBITDA (earnings before interest, tax and depreciation and amortisation) positive by 2019-20.
Naveen Kulkarni, a telecom analyst with PhillipCapital, told BloombergQuint that “though net profit from the telecom unit could take another three to five years, as long as it is moving in the right direction, there is a certain upside in the stock.”
Mukesh Ambani also said that Jio will provide 20 percent more data compared to any other telecom provider and aims to increase network coverage of Jio to 99 percent of population and double its data capacity by 2017-end.