No adverse impact of 11 mn user loss in Q2, was accounting correction: Jio

Jefferies says Q2 result disappointing, cuts earning estimate

Reliance Jio has said the decline of 11 million subscribers in the second quarter was merely a result of an accounting correction and it had zero negative impact on its financial performance.

Jio is also looking to accelerate its customer acquisition by operationalising recently purchased spectrum and is poised to launch an affordable smartphone to target 2G users, Reliance Jio Infocomm president, Kiran Thomas, said in a post result conference call. He added that Jio has become the most preferred service provider highlighting a significant increase in subscribers porting to its network.

Analysts at Jefferies and JM Financial Institutional Securities, however, said Jio’s second quarter subscriber loss was disappointing. Jefferies has cut Jio’s revenue, EBITDA and profit estimates for FY 22-24 due to the second quarter

miss. Both the brokerages feel that Jio may not participate in a tariff hike to consolidate customer base if the trend of subscriber loss persists.

Jio, which added 34 million customers in three previous quarters, reported a surprise decline in its customer base on a sequential basis in the second quarter. The country’s largest telecom operator blamed “Covid-19 impact” as it lost 11.1 million customers in the second quarter. At the end of the second quarter, Jio's subscriber base stood at 429.5 million.

The company said that a large number of low end subscribers who were offered free service during the pandemic failed to stay up to date with recharges. “We have a policy of keeping them (such customers) in our base for about 90 days. So effectively the effect of these people stopping recharging two quarters before is now getting reflected in our subscriber count,” Thomas explained and described the exercise as an accounting correction.

Telecom Regulatory Authority of India guidelines require companies to keep a customer number active for 90 days after the expiry of recharge and all companies present data to the regulator accordingly. However, for purposes of quarterly results, Airtel and Vodafone Idea report only those customers who have recharged or contributed to their revenues in the last 30 days.

“In our view a part of it (subscriber losses) could have been due to the impact of Jiophone users moving out after their 3 year lock-in as July-September 2018 had seen the launch of Jiophone 2 and several flash sales. Hence there could be a risk of more Jiophone users being lost as they come out of their three-year lock-in and could prolong the timeline for Jio to get to its 500  million (subscribers) target,” J M Financial Securities said.

JP Morgan said while tariff hike is round the corner the question is whether Jio would be comfortable with 25-30 per cent hike or a 10-15 per cent hike to start with and see the impact on subscriber addition from the initial tariff hikes.

In their results review, Jefferies analysts have said that Jio’s second quarter performance had little to cheer about as revenue, EBITDA and profit missed estimates. While the brokerage had estimated 4.7 per cent and 6 per cent quarterly rise in revenue and net profit, the actual figures represented 4.3 per cent and 2.1 per cent gain respectively.

Reliance Jio Platform’s net profit rose 23.4 per cent to Rs 3,728 crore in the second quarter of financial year 2021-22 (Q1FY22).

Revenue from operations grew 6.9 per cent YoY to Rs 19,777 crore, while earnings before interest, tax, depreciation, and amortisation (Ebitda) rose 16.5 per cent to Rs 9294 crore.

Jefferies has cut FY 22-24 subscriber estimates by 5 per cent and expects Jio to add 49 million subscribers during the period. Similarly, it has cut revenue, EBITDA and net profit estimates by 1-2 per cent, 2-4 per cent and and 2-7 per cent for the same period to factor the second quarter miss.

“We cut our RJio valuation by 2 per cent to $88 billion on the back of estimate cuts and lower multiple for mobile business,” Jefferies said.