Reliance Jio may need more 4G spectrum to cater to user growth: Analysts

Mukesh Ambani-owned Reliance Jio may require more 4G spectrum to service its rapidly growing user base, analysts say, even as the telecom firm has indicated it has completed its capex cycle. 

Jio’s average revenue per user (ARPU) dip in July-September (Q2) was impacted by better subscriber mix and shift to long-term value packs, in line with recent trends, which in turn has boosted earnings before interest, tax, depreciation, and amortisation (Ebitda). 

The company indicated that gross debt is at Rs 84,000 crore. High debt led to a more-than-expected 88 per cent increase in interest costs year on year (YoY) to Rs 1,871 crore for the quarter. Capex for the quarter stood at Rs 5,000 crore. “While the company continues to focus on market share gains and moving towards a reduction-in-capex phase, it may still need
incremental 4G spectrum in the near-to-medium term to accommodate subscriber addition and the growing data usage," noted Rajiv Sharma, head of research, SBICap Securities. Ebitda was up 10 per cent quarter on quarter (QoQ), due to an increase in revenue as well as a steep reduction in access charges (down 23 per cent QoQ).

 

During the India Mobile Congress last week, Jio management pushed the government to ensure timely availability of spectrum, urging it to make airwaves available even during auctions at the price determined in the last sale.

While Ebidta for Q2 was up 44.6 per cent to Rs 5,166 crore, Ebidta margins were up over 315 basis points over the year-ago quarter. Surprisingly, interconnect usage charge (IUC) came down 37 per cent YoY (23 per cent sequentially) to Rs 654 crore. 

Jio's revenues for the quarter were up nearly 33.7 per cent YoY growth to Rs 12,354 crore. This was led by a 41 per cent growth in subscribers to 355 million. The pressure on customer realisation or ARPU, however, continued with the metric coming in at Rs 120 as compared to Rs 121 estimated by analysts. 

However, a majority of subscribers are on three-month plans and the company is aggressively pushing JioPhone offers as well, which offer similar ARPU. Further, the cheaper JioPhone will likely drive more 2G users from rivals to the telco. Note that Jio's long-term plans are cheaper than monthly plans. 

“The management clarified that the Jio mobile capex is largely behind as mobile footprint has reached 99 per cent population. The fibre-to-home (FTTH) capex will, however, continue as the firm expands its reach,” wrote Avishek Dutta, analyst, Prabhudas Lilladher. 

Capex at Jio is mainly last mile for broadband and data centres for its Microsoft partnership, and the capitalised portion of fiber rentals (capitalised till home broadband reaches an optimum utilisation), according to a Credit Suisse report. 

Jio paid up-front amount of Rs 19,800 crore (increase in non-current assets H1FY20 balance sheet) to the Fiber InvIT as up-front commitment to use 50 per cent of the Fiber assets.