Jio added a net 15.4 million users in the January-March period – its highest in the past four quarters — compared to 5.2 million and 7.3 million user adds in the December and September quarters of FY21 respectively. Its subscriber churn dipped to 1.26% (vs 1.6% in the December quarter), underlining improved customer retention.
Analysts expect Jio’s recent spectrum purchase (in the March sale) and cut in JioPhone tariffs to keep the Mukesh Amabni-led telco’s user additions strong, and estimate it to add a whopping 85 million subscribers over FY21-23. They said Jio’s strong fourth quarter customer adds showed better channel management while lower churn reflected that farmer protests haven’t had the kind of impact they did last December or this January, coupled with the moderating impact of Covid19.
“We raise profit estimates by 3-5% to factor in higher Ebitda (read: operating income) and higher other income and expect Jio to deliver a 28% CAGR (compounded annual growth rate) in profits over FY21-23E,” Jefferies said in a note seen by ET.
The global brokerage has “raised Jio’s valuation by 3% to $90 billion on the back of earnings revisions”. It added that Jio’s positive free cash flow (FCF) in FY21 despite a Rs 15,000 crore outflow towards recent spectrum purchases is a highlight of its March quarter earnings numbers.
J P Morgan said “Jio’s recent spectrum purchases can dramatically improve network capacity and experience, aiding its ability to add subscribers and further moderating churn.
Over the past few months, analysts have been expecting Jio to quickly unveil the much awaited budget Android smartphone with Google to spur its modest customer adds in the past few quarters.
Despite the strong rebound in user adds, Goldman Sachs expects Jio to launch the low-cost smartphone in coming months, which will keep the telco’s subscriber momentum elevated. But it expects “the impact from the Google-partnered smartphone to be lower vs that of JioPhone”.
Analysts expect the launch of Jio’s low-cost smartphone to coincide with the next Reliance Industries (RIL) AGM.
Last Friday, Jio reported slightly higher net profit of Rs 3,360 crore in the March quarter compared with Rs 3,291 crore in the fiscal third quarter. But its fiscal fourth quarter revenue fell 6.1% sequentially to Rs 17,358 crore, dragged down by the disappearance of interconnect usage charge (IUC) earnings from January 1. The 8.5% sequential fall in Jio’s average revenue per user (ARPU) to Rs 138 was also due to the change in interconnect regime.Analysts said though Jio added 15.4 million users, they would have come at a lower ARPU due to a higher contribution of low-end JioPhone users.
ICICI Securities said “Jio’s net debt stood at Rs 29,000 crore, which rises to Rs 72,600 crore if one includes its entire spectrum commitment”. In the recently concluded March 2021 auction, Jio picked up 488.35 units of spectrum in 22 circles in the 800 Mhz, 1800 Mhz and 2300 Mhz bands for Rs 57,123 crore. It has made an upfront payment of Rs 15,019.84 crore.
The brokerage also noted that Jio’s network cost has risen 30% in FY21 to Rs 22,100 crore, and considering the rise in payments to tower and fiber InvIT, estimates its network cost inflation to remain high even in the next 2 years, not considering (potential) 5G rollout costs.
Analysts cautioned that Jio runs the risk of a significant earnings decline in FY22 if its March quarter revenue trend lingers, adding that the company would need tariff hikes to maintain earnings growth momentum.
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