Reliance Jio’s Profit May Fall First Time In Seven Quarters

Reliance Jio Infocomm Ltd. is expected to earn lower profit on every rupee of revenue earned in the first quarter as it starts paying for towers and fibre.

Reliance Industries Ltd., the parent of Reliance Jio, in the last financial year transferred its tower and fibre assets to a separate unit controlled by an investment infrastructure trust. What that means is that it will have to pay for using these assets, increasing costs quarter-on-quarter in the three months ended June. That’s likely to result in the first drop in profit in seven quarters.

The telecom operator, controlled by Mukesh Ambani, will see its revenue grow, aided by aggressive subscriber additions. Analysts expect Reliance Jio to report 2.5 crore new subscribers in the quarter. Average revenue per user is largely is expected to remain flat, but could decline if it adds more JioPhone subscribers.

Ambani’s flagship Reliance Industries, on a standalone basis, will yet again see a drop in its operating profit, mainly because of weaker refining and petrochemical earnings.

Though Singapore gross refining margin, the Asian benchmark, was higher compared to a quarter earlier, RIL’s premium to the benchmark is likely to narrow. Similarly, narrower spreads could impact petrochemical earnings. Higher volumes despite a planned shutdown is likely to cushion the downside though.

Overall, earnings of the oil-to-telecom conglomerate are expected to remain largely stable as higher contribution from retail division, an increase in other income, lower interest costs and foreign exchange gains could offset lower energy and telecom earnings.

(Earnings expectations are compiled from reports by Emkay Global, Elara, Kotak Securities, Narnolia, Antique Broking, BOBCAP, Edelweiss, Jefferies, HSBC, Nomura, HDFC Securities, Morgan Stanley, Goldman Sachs and Motilal Oswal)