The good thing about the launch of the JioBharat feature phone is it aided subscriber additions for Jio, the telecom subsidiary of Reliance Industries Ltd, during the September quarter (Q2FY24). Jio’s quarterly net subscriber addition continued to rise in Q2, helped by a lower churn and 5G launch to 11.1 million. For perspective, it stood at 9.2 million and 6.4 million in Q1 and Q4FY23.
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“High growth in subscriber addition implies Jio has been able to make in-roads via JioBharat phone,” analysts at Nuvama Research said in a report on 28 October. That said, it is still early days, and one needs to monitor user experience to see if it continues to drive subscriber additions. For JioBharat phone, price of the 28-day unlimited voice plan is 30% lower than other operators, besides offering seven times more data.
However, the growth in the average revenue per user (Arpu) has been underwhelming. In Q2, higher subscriber additions from a lower priced segment meant only 0.7% sequential rise in Jio’s Arpu to ₹181.70. Jefferies India’s analysts said Jio’s daily Arpu fell for the second quarter in a row, despite rising share of higher-Arpu home broadband segment in overall revenues. “This suggests that Jio’s daily Arpu in the mobile segment is declining, potentially due to higher additions among lower-Arpu subscriber segment (JioBharat led),” said the analysts in a report on 28 October. The brokerage cut its revenue and Ebitda estimates for Jio by 1% over FY24-26. Ebitda, a measure of profitability, stands for earnings before interest, taxes, depreciation, and amortization.
Jio’s operating revenue rose by 3% sequentially in Q2 to ₹24,750 crore, but Ebitda margin was nearly flat at 52.8%, suggesting limited operating leverage benefits.
Meanwhile, its capital expenditure is likely to peak in FY24 as the roll-out of the 5G network will be completed by the year end. Thereafter, a significant drop is expected in capex intensity. In the half year ended 30 September, Reliance Industries Ltd’s (RIL) consolidated capex stood at ₹78,460 crore, up nearly 23% year-on-year.
Furthermore, falling debt levels augurs well. Reliance’s consolidated net debt was ₹1.17 trillion as on September end, down 7% from the levels seen at the end of June.
The company’s other consumer business—Reliance Retail—clocked revenue growth of 19.5% year-on-year in Q2 to ₹68,937 crore. But the pace was lower than the area addition of 31% year-on-year to 71.5 million sq ft as the new stores are yet to pick up pace.
All said, the main concern is that the telecom segment lacks visibility of tariff hikes, and it is a key catalyst for the Reliance Industries stock. Shares of the company were down by 2% so far in 2023 sharply underperforming the 5% gain in the Nifty 50 index. Jefferies notes that Reliance shares trade at a 10% discount to its five-year average forward Ebitda.