How do brokerages view Reliance Jio's new feature phone offering?

Reliance Jio (RJio), the telecom arm of Reliance Industries launched entry-level 4G featured 'JioBharat' phones priced at Rs 999 (below most 2G-featured phones). Brokerages estimate that the launch of 'JioBharat' phones could disrupt the 2G market, and delay the tariff hike discussions in the near-term.
 

RJio's JioBharat phones are intended to cater to the low-end of the market without access to the internet, said the management. It is cheaper than any feature phones, offering unlimited voice, and 24 GB data. The beta trial of the phone will begin from July 7, 2023.
 

Feature-wise, it is a 2-inch phone with 0.3 video graphics array (VGA) camera. The phone is bundled with in-built applications such as JioSaavn, JioCinema, and JioPay.  
 

Shares of Reliance Industries traded at Rs 2,577 apiece, down 1.4 per cent in Tuesday's intra-day trade. In comparison, the S&P BSE Sensex rose over 100 points to 65,311 levels.
 

Meanwhile, here's how brokerage houses view impact of JioBharat on the telecom sector:
 

Jefferies

Reliance Jio's new device offering could drive 20-22 million subscriber additions for the company, providing a 2-3 per cent boost to its FY25 revenues/Ebitda (earnings before interest, tax, depreciation, and amortisation) profile annually, while it may impact Bharti Airtel's revenue/Ebitda by 1-2 per cent, said analysts. 
 

RJio's attractive offerings on both postpaid and voice segments come at a time when Vi's cash flow pressures are mounting, implying market consolidation into an effective duopoly sooner, they added.
 

JP Morgan

After Bharti Airtel raised 2G prices to Rs 155 from Rs 99 across all circles, and Vi took this measure in one circle, this step can halt tariff hike discussions in the 2G segment and help RJio gain market share, noted analysts. The brokerage firm sees this as a negative for Bharti Airtel and remain 'underweight' on the counter as a combination of higher 5G capex, lack of tariff hikes, and deflation in premium ARPUs could drive down return on capital invested (ROIC). 
 

Citi Research

Since the feature phone segment contributes 20 per cent of mobile revenues for Bharti Airtel, and 30 per cent for Vodafone Idea, analysts do not see these revenues immediately at risk as subscribers may not be willing to purchase it right away. However, it could help RJio to expand its subscriber base in the 2G segment, as well as grab market share in new feature phone sales. Analysts believe the key attractiveness is likely to be the monthly plan of Rs 123 instead of phone specifications.
 

Emkay Research

At the end of Q4FY23, Bharti Airtel, and Vi had 111 million, 103 million subscribers, respectively, and the shift of 40 per cent 2G users to  JioBharat, analysts said, may impact their India mobile revenue by 8 per cent or 11 per cent, respectively, while Ebitda may be impacted by 11 per cent or 19 per cent, respectively. The brokerage firm believes that the phone launch could further delay the tariff hike discussion, creating a sharper dent in Vi's business. 
 

Kotak Institutional Equities

Analysts observe that the launch of internet-enabled JioBharat phones could raise concerns of rising competitive intensity at the lower end, especially when incumbents like Bharti Airtel, and Vodafone Idea have raised prices for entry-level packs sharply. Though the phones are bundled with Jio Applications such as JioCinema, JioSaavn, and JioPay; the additional upfront device cost could restrict uptake to new feature phone buyers, they noted.
 

Nuvama Institutional Equities

After Reliance Jio announced postpaid family plans, the launch of JioBharat would further target the lower end of the pyramid. This, analysts believe, would further increase competitive intensity in the sector and delay prospects of a coordinated prepaid tariff hike. 
 

If the phone is successful, it could lead to significant subscriber additions for RJio and hence improve its Ebitda/ROCE (return on capital employed) profile. On the contrary, it could also prove to be ARPU (average revenue per user)-dilutive, given their discounted plan prospects.