Reliance Jio Q2 net up 45%, but ARPU signal weak
PAT rises to Rs 990 cr while ARPU falls on addition of more JioPhone subscribers.
Profit rose more than 45% from the year earlier but average revenue per user (ARPU), a key performance parameter, fell for the seventh successive quarter to Rs120 from Rs122 as the Mukesh Ambani-owned telco added more lower-revenue-generating subscribers through its 4G featurephone, the JioPhone.
Jio posted profit of Rs990 crore in the quarter ended September, up from Rs 681 crore a year ago, against market estimates of more than Rs 1,000 crore. Profit rose 11% from the preceding quarter.
“That's okay, more customers are coming,” Jio strategy head Anshuman Thakur told reporters on Friday, referring to the ARPU decline. “At this point, we are much more focused on creating the digital ecosystem, which means getting more and more customers onto the network and ensuring that they consume more data. So, on tariffs, there is no reason to do anything different today.”
He added that the company’s move to charge for voice calls to rival networks was not a tariff action but only a “recovery of cost” for the 6 paise a minute Jio pays Vodafone Idea and Bharti Airtel as interconnect usage charges (IUC) as per rules. Jio had promised its subscribers that voice calls would be free for life.
“October-December quarter, you will see a benefit on margins,” Thakur said.
IUC, a charge paid by the call-originating telco to the destination operator, is at the heart of the latest spat between Jio and older incumbents Bharti Airtel and Vodafone Idea over the regulator’s move to seek views on deferring a zero-IUC regime, which was slated to take effect from January 2020. Jio wants the charge to go, which will help to lower its costs, while the older operators want it to stay, since they are net revenue gainers from IUC.
Interconnect Usage Charge Declines 23%
The access charge, or IUC, that Jio pays however has been falling. In the September quarter, it fell 23% to Rs655 crore from the preceding one, building on a similar drop in the April-June period, as more calls started terminating on Jio’s network as it added subscribers at a furious pace while rivals lost users.
Jio added a net 24 million subscribers in the quarter for a total of 355.2 million at the end of September. Monthly average data usage per user rose to 11.7 GB from 11.4 GB but voice consumption per user fell to 789 minutes per month from 821 minutes in the preceding quarter.
Helped by higher data usage by a larger user base, operating revenue rose 5.8% sequentially to Rs 12,354 crore and 33.7% on year for the country’s newest telecom operator, which is playing a key role in helping parent Reliance Industries Ltd (RIL) transform itself from an oil-and-retail conglomerate to a technology platform company.
“Jio crossed the 350 million subscriber mark to remain the world's fastest-growing digital services company and we are still adding more than 10 million new customers every month,” said Mukesh Ambani, chairman of RIL, Jio’s parent. “After tremendous success on mobile broadband connectivity business, Jio is now geared up to kick-start other growth engines–home broadband, enterprise services, small and medium business connectivity, and Internet of Things (IoT).”
Competitors Bharti Airtel and Vodafone Idea will announce their results later this month and early November, respectively. Both are expected to post losses, but Airtel’s ARPU is expected to be higher than that of Jio.
"The ARPU decline is marginal,” said Rohan Dhamija, partner at Analysys Mason. “As a telco adds more subscribers, getting into longtail on the affordability cycle, the quality of subscribers goes down in terms of ARPU. It’s a natural phenomenon, because less wealthier subscribers get on the network.”
He added that the growth in earnings before interest, tax, depreciation and amortisation (Ebitda) showed the strength of the business.
“And with the investment cycle now done, free cash flow and enterprise value of the business will be much higher,” he said.
Jio’s Ebitda for the quarter grew nearly 45% on year and over 10% sequentially, to Rs5,166 crore, beating estimates. Ebitda margin expanded to 41.8% from 40.1% in the preceding quarter, helped by operational efficiencies, the company said.
"Since they have lowered the price for Jio featurephone, there may not be an immediate upside seen in core ARPU,” said Rajiv Sharma, head of research at SBICap Securities. “But yes, due to the voice charging on the account of IUC, it will help ARPU going forward, unless the regulator brings down the charge to zero.”
Jio demerged its tower and fibre assets in the preceding quarter, which helped the company reduce liabilities of about Rs 1.07 lakh crore from the balance sheet.
Gross debt at the end of September was Rs84,00 crore, with the net finance cost rising nearly 13% sequentially to Rs1,871 crore. Capex for the quarter was Rs5,000 crore.
A consortium led by Brookfield Asset Management has already agreed to acquire RIL’s Reliance Jio lnfratel unit in a multi-stage deal, which would see it first investing Rs 25,215 crore in an infrastructure trust that owns 51% of the telecom tower company.
“Transaction for subscription of units of Tower InvIT by Brookfield Infrastructure Partners LP and its affiliates is in final stages,” Jio said.
“Good progress” was being on monetising the optic fibre assets under Jio Digital Fibre Pvt Ltd and the company will make “appropriate disclosures” as needed, Thakur said.