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Reliance Jio Infocomm’s (RJio) revenue grew 12% YoY, helped by rise in mobile subs base, faster growth in FTTH and enterprise business. EBITDA grew 16% YoY, supported by lower SUC (added 5% YoY to EBITDA growth), and higher Ind-AS impact; adjusted for it, EBITDA growth probably was in high single digit. RJio remains confident of driving higher revenue growth led by 1) adoption of 5G services, and therefore, higher data usage; 2) FTTH subs growth boosted by Jio-back-up plan; and 3) continued growth in enterprise business. However, we see near-term challenge in EPS growth with rise in cost due to higher network cost, rise in D&A on capitalising 5G spectrum and network investment and higher interest cost (on 5G capitalisation). Capex spend in FY23 (excl spectrum) was >Rs500bn, which is much higher. Net debt (borrowing + spectrum) is Rs1,510bn, and if capex creditor is added, it would increase to >Rs1,750bn. We have reduced our EBITDA estimates by ~3% each for FY24E and FY25E.

* RJio’s revenue grew 12% YoY to Rs234bn in Q4FY23. This was driven by subs growth of 7.1% YoY (net add: 6.4mn) to 439mn, and ARPU grew 6.7% YoY to Rs179, which has benefited from 1) strong growth in FTTH subs base (est. 60% YoY to 8.5mn) which has higher ARPU vs mobile subs; 2) higher mix of ILD revenue which is indicated by 48% rise in access charges; and 3) stronger growth in enterprise business which includes connectivity solutions (including SD WAN, cloud, IOT, etc). We anticipate ARPU growth to rise in FY24 and FY25, aided by tariff hike which we believe is not completely baked in our estimates. Churn rate was stable at 2% (vs 2.2% in Q3FY23) and gross adds were slightly lower at 32.6mn (vs 35.5mn in Q4FY22) due to weaker smartphone sales. Minutes grew 9.2% YoY to 1,310-bn, and data usage was up 23.2% YoY to 30,300-bn MB. Data usage growth was also aided by FTTH subs that use higher data quantity, with their number growing fast for RJio.

* EBITDA grew 16.2% YoY to Rs122bn. Network costs rose 10.6% YoY to Rs72bn and the cost may rise further over the next two years driven by 1) commercial launch of 5G services which is seeing rapid rollout; and 2) increased rollout of JioFiber will help charge more rental cost to P&L. Network cost also benefited from Ind-AS accounting where repayment to lease liability for FY23 has increased to Rs41bn vs Rs15bn in FY22. SG&A expenses grew 36% YoY to Rs11bn. Employee costs increased 19% YoY to Rs4.4bn. License fees and SUC dipped 14% YoY to Rs22bn as RJio benefited from lower weighted-age SUC charge (% of AGR) on purchase of 5G spectrum. D&A rose 33% YoY to Rs50bn, partially on deployment of spectrum bought in Mar’21, and higher lease liability recognition. Interest cost dipped 17% YoY to Rs10bn as interest on 5G spectrum is not charged to P&L. Net profit grew 13% YoY to Rs47bn.

* Jio Platforms’ revenue rose 49% YoY. Revenue of Jio Platforms (standalone, which houses most digital properties) grew 49% YoY to Rs20bn in Q4FY23, while EBITDA jumped 24% YoY to Rs4.5bn. However, net profit rose 91% YoY to Rs2.7bn due to lower effective tax rate at 19.5% (vs 47.8% in 4QFY22).

* EBITDA up 24% YoY in FY23. In FY23, RJio added 29mn subs bringing the total number of subs to 439mn, while ARPU improved 16% YoY to Rs178. Revenue grew 17.9% YoY. Lease liability costs rose to Rs41bn (from Rs14.6bn in FY22), thus adjusted EBITDA increased 11.5% YoY. Network operating costs were up 10% YoY to Rs285bn, and we believe lnvIT cost (particularly fibre) is still being partially capitalised. Net profit grew 23% YoY to Rs182bn

* Observations from balance sheet and cashflow: 1) Intangible asset (spectrum) CWIP was Rs1,225bn, which means 50% of the spectrum bought in Mar’21 auction and the entire 5G spectrum have not been put to use. Amortisation will rise as the company deploys more spectrum; 2) gross debt (including deferred spectrum liability) was Rs1,529bn; it also has other financial liabilities which include capex creditors and interest accrued but not paid increasing by Rs254bn to Rs315bn; 3) capex creditor was Rs85bn in FY22 and it should have increased to >Rs250bn; 4) lease liability repayment increased to Rs41bn in FY23 from Rs14.6bn; 5) RJio received cash tax refund in FY23; 6) tangible CWIP increase is large from 5G capex of Rs242bn; and 7) capex adjusted for spectrum payment was ~Rs500bn. The capex spend as per cashflow statement was Rs336bn. This includes Rs78.6bn of upfront payment for 5G spectrum. If we exclude these spectrum payments, network capex was Rs257bn. However, RJio has not made payment for 5G network rollout which has increased capex creditors by ~Rs230bn; if added to capex, total spend was >Rs500bn in FY23.

* Update on 5G rollout: 1) In April’23, RJio has crossed 5G expansion in 2,300 cities and towns and by end-Dec’23, it expects pan-India 5G footprint; 2) 5G has been deployed in 60k sites (~350k cells deployed which means 3 sector each for 700MHz and 3500MHz band per site).

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