IGI Logo

Revenue growth pace slowing

Reliance Jio Infocomm (RJio) cleaned up some of its inactive subscriber (sub) base in Q3FY22 while SIM consolidation led to a further dip. However, ARPU grew 5.6% QoQ to Rs152 (optically higher due to lower sub base) on the back of 20% hike in tariffs w.e.f. Dec’21 and higher FTTH sub base. Underlying mobile revenue growth slowed to <3% QoQ, but EBITDA grew fast due to lower network opex as a result of higher lease liability recognition, which pushed rental cost below EBITDA. Company has not discussed much about JioPhone Next, while we expect bulk of the benefit from tariff hikes to show in the next few quarters. We cut our EBITDA estimate by 2.6% for FY22E but increase by 7-9% over FY23E-FY24E while increasing our net profit estimate by 13-16% on lower finance cost.

* RJio revenues grew 3.3% QoQ / 4.6% YoY (L2L: +13% YoY, adjusted for IUC impact) to Rs193bn in Q3FY22. Subs dipped again, by 8.5mn (after loss of 11.1mn in Q2FY22) to 421mn on SIM consolidation and clean-up of inactive subs. In past two quarters, RJio culled out 4.4% of its sub base. This has partially helped ARPU grow 5.6% QoQ to Rs152 and derived partial benefit of the 20% tariff hike taken in Dec’21. If adjusted for FTTH and enterprise business, our working suggests underlying mobile revenue growth at <3% QoQ in Q3FY22. This is also hinted at by a mere 2.6% QoQ rise in license fees and spectrum usage charges during the quarter.

Churn rate rose to 3.4% (vs 3.6% in Q2FY22) on sub clean-up while gross sub addition rose to 34.6mn (from 35.6mn in Q2FY22). Minutes grew 5.5% QoQ / 18% YoY to 1,150-bn, and data usage rose only 1.7% QoQ / 47.5% YoY to 23,400-bn MB. Data usage growth suddenly slowed down and, if we deduct usage by new FTTH subs, we see that data consumption by mobile subs reduced QoQ.

* EBITDA boosted by lower network opex. Network cost dipped 0.3% QoQ / rose 10.4% YoY to Rs62.4bn on higher recognition of lease liability, which pushed some rental cost to below EBITDA (to amortisation and finance cost). SG&A expenses remained volatile and dipped 5.8% YoY (+4.5% QoQ) even on a low base. Employee costs increased by only 5.2% YoY to Rs3.6bn. EBITDA grew 17.3% YoY / 5.8% QoQ to Rs95bn. Depreciation and amortisation (D&A) rose 11.9% QoQ (22.6% YoY) to Rs35.7bn partially on deployment of spectrum bought in Mar’21. Interest cost increased by 15.7% QoQ to Rs12.5bn on rise in deferred spectrum liability. Net profit grew 2.5% QoQ (9.8% YoY) to Rs36bn.

* Jio Platforms revenues rose 27.2% YoY (20% QoQ). Revenues of Jio Platforms (standalone, which houses most digital properties) grew by a sharp 20% QoQ / 27.2% YoY to Rs12.5bn in Q3FY22, and EBITDA grew 62% QoQ / 34% YoY. However, net profit shrunk 10% QoQ / 9.1% YoY to Rs1.8bn on rise in interest cost to Rs1.6bn (vs just Rs160mn in Q2FY22).

* Other highlights. 1) RJio has prepaid (read: refinanced) Rs308bn of deferred spectrum liabilities accrued before the Mar’21 auctions. This deferred spectrum debt attracted a higher interest cost and has been refinanced with low-cost bond issuance. This should help RJio save Rs12bn in annual interest cost. 2) RJio did not disclose much about JioPhone Next adoption while the dip in sub base despite its launch . We would wait to see the full impact of tariff hike on SIM consolidation in the next few quarters. 3) Full benefit of tariff hike should show in the next two quarters.

* Changes in assumptions: 1) Despite JioPhone Next launch, we have cut our sub base assumption by 2-6% factoring SIM consolidation and culling out of inactive subs. 2) Correspondingly, we have increased our ARPU assumption factoring-in the benefit of clean-up of sub-base (we now assume slightly better flow-through of tariff hike). 3) We are factoring-in gradual increase in network opex. 4) We have reduced our interest cost estimate incorporating the benefit of refinancing of highcost spectrum debt.

The above changes in our assumptions have resulted in an EBITDA cut of 2.6% for FY22E, but an increase by 7-9% for FY23E-FY24E. Our net profit estimates are revised upward by 13-16% for FY23E-FY24E.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer