What Reliance Jio Needs To Break Even
Reliance Jio would need 11 crore active subscribers with an average revenue per user of Rs 300 to break even in FY19.
How far is Reliance Jio Infocomm Ltd. from breaking even?
It depends on how many users the telecom operator manages to engage, according to CLSA. The Mukesh Ambani-led operator will require 11 crore active subscribers and an average revenue per user of Rs 300 every month to break even, the brokerage said.
While Reliance Jio had 11 crore users in April, only 71.2 percent of them were active, according to latest TRAI data. That’s the lowest since it started operations in September when it had 95 percent active subscribers.
The company offered free services for the first six months to lure users, disrupting the Indian telecom market as it triggered a tariff war. Its parent Reliance Industries Ltd. has been investing to build infrastructure to offer 4G data at competitive prices. By the end of March, it had pumped close to Rs 1.9 lakh crore into the telecom venture, making it the second largest investor in the sector, according to its annual report.
The company incurred total costs of more than Rs 21,000 crore in the year ended March, the annual report said. Of this, Rs 14,000 crore was operational expense.
The telecom operator categorised costs as capital expenditure in the last financial year as it was yet to start charging for its services. A better insight into the company’s profitability will emerge once it starts recognising its expenses.
Reliance Jio’ s expenses cannot be compared with that of Bharti Airtel Ltd. and Idea Cellular Ltd. as it started its operations in September. Moreover, Idea and Airtel are fully operational telecom companies and have higher regulatory costs.
The telecom operator paid about Rs 2,589 crore to rivals as interconnect usage charges for call made by its users to subscribers of other telecom operators. Currently, operators charge 14 paise per minute.
Its total debt stood at Rs 56,488 crore, while it had an equity base of Rs 70,864 crore at the end of March. Which implies a total debt-to-equity of 0.8 times, lower than peers.
