Buy Jio Platforms Ltd For Target Rs.1,515 by Motilal Oswal Financial Services Ltd
Strong margin delivery; FCF inflection underway
* Jio Platforms (JPL) reported an in-line 2QFY27 revenue growth (~3% QoQ, +11% YoY), driven by 1.5% QoQ ARPU uptick (one additional day QoQ), ~9m subscriber net adds, and scale-up in digital services (+4% QoQ, +16% YoY).
* 2QFY27 reported EBITDA grew 5% QoQ (+15.5% YoY, 3% ahead), driven by robust ~88% incremental margin in RJio (vs. our estimated 57% and 72% in 1Q) and 8% QoQ (+48% YoY) growth in reported EBITDA from digital services.
* 1HFY27 consolidated cash capex moderated sharply to INR106b (vs. INR207b YoY), leading to an inflection in FCF generation to INR189b (vs. INR61b YoY) and a decline in effective net debt by ~INR207b YoY to INR1.38t. ? We raise RJio standalone FY27-29E reported EBITDA by 2-5%, driven by higher incremental margin (~70% over FY27-29E vs. ~64% earlier). Our FY27- 29E JPL consolidated EBITDA rises by ~3-5% and PAT by ~7-11%, driven by accelerated FCF generation and consequent deleveraging.
* We expect RJio’s capex to remain range-bound, which should enable JPL to generate a cumulative FCF of INR1.68t over FY27-29 and achieve net cash status by FY29.
* We reiterate our BUY rating on JPL with a revised TP of INR1,515, premised on DCF-backed ~12.2x FY29 reported EBITDA, driven by higher incremental EBITDA margins and faster-than-expected inflection in FCF.
* While near-term stock price performance could remain volatile due to limited free float (<3%), we remain structurally positive on the Indian telecom sector (expect ~15% smartphone tariff hike soon). JPL, by virtue of being the gateway of digital India, is set to extend its market leadership in Wireless and Home Broadband, while the scale of its digital offerings and potential international tie-ups for its proprietary technologies provide growth and valuation upsides.
RJIL: In-line 3% QoQ revenue growth; incremental margins at ~88%
* RJio’s standalone revenue at INR353b grew 3.2% QoQ (+10.8% YoY, in line) driven by 9.1m overall net adds (in line), while ARPU rose ~1.5% QoQ to INR219 (vs. our est. INR218), driven largely by one additional day QoQ.
* Among key expenses, network opex declined ~1% QoQ (+3.4% YoY, 3% lower), while SG&A and other costs rose ~4% QoQ (+19% YoY, 3% above). Interconnect charges rose 9.5% QoQ (~15% YoY), and employee costs declined ~3%QoQ (+6% YoY).
* Reported EBITDA rose 5% QoQ (+14% YoY) to INR197b (2% ahead). EBITDA margin expanded ~105bp QoQ to 55.7% (+150bp YoY, 100bp ahead).
* Incremental EBITDA margin for 2QFY27 was robust at ~88% (vs. 71.2% in 1QFY27, higher than our estimate of ~57%).
* D&A expenses at INR71.4b rose ~2% QoQ (+11.8% YoY, 2% lower), while interest cost at INR29.9b inched up 1% QoQ (+41% YoY, ~1% below).
* Reported PAT at INR77.2b grew 7.7% QoQ (+11% YoY, 5% ahead)
* For 1HFY27, RJio’s revenue/EBITDA/PAT grew 11%/13%/9%, driven by ~18m net subscriber additions and modest ~3% YoY ARPU growth
* The calculated net debt (including leases, other financial liabilities, and DPL) declined by ~INR200b during 1HFY27 to INR1.45t (INR345b dip YoY).
* 1HFY27 cash capex moderated significantly to INR94b (vs. INR200b YoY), which led to inflection in FCF (after interest and leases) to INR184b (vs. INR214b in FY26 and INR63b in 1HFY26).
* For 2HFY27, the ask-rate for revenue/EBITDA/PAT is ~10%/13%/15%
Valuation and view:
* We raise RJio standalone FY27-29E reported EBITDA by 2-5%, driven by higher incremental margin (~70% over FY27-29E vs. ~64% earlier). Our FY27-29E JPL consolidated EBITDA rises by ~3-5% and PAT by ~7-11%, driven by accelerated FCF generation and consequent deleveraging.
* We expect RJio’s capex to remain range-bound, which should enable JPL to generate a cumulative FCF of INR1.68t over FY27-29 and achieve net cash status by FY29.
* We reiterate our BUY rating on JPL with a revised TP of INR1,515, premised on DCF-backed ~12.2x FY29 reported EBITDA, driven by higher incremental EBITDA margins and faster-than-expected inflection in FCF.
* While near-term stock price performance could remain volatile due to limited free float (<3%), we remain structurally positive on the Indian telecom sector (expect ~15% smartphone tariff hike soon).
* JPL, by virtue of being the gateway of digital India, is set to extend its market leadership in Wireless and Home Broadband, while the scale of its digital offerings and potential international tie-ups for its proprietary technologies provide growth and valuation upsides.
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