Profit

Mukesh Ambani's Jio Poised To Report Profit In Major Milestone

Reliance Jio may report a net income this month itself when it lays out its December-quarter performance, people with knowledge of the matter said.

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Mukesh Ambani's Jio Poised To Report Profit In Major Milestone

Achieving profitability would be one of the parameters that will decide Jio's path to an IPO.

Highlights

  1. Saving from cut in interconnection fees to boost Jio income, say experts
  2. Cost structures may change once Jio acquires RCom assets
  3. Jio has a customer base of about 160 million
Richest Indian Mukesh Ambani's telecom venture is on course to record its first-ever quarterly profit this financial year, aided by the government's decision to slash interconnection fees, people with knowledge of the matter said.

Reliance Jio Infocomm Ltd., a unit of the nation's most valuable company Reliance Industries Ltd., may report a net income this month itself when it lays out its December-quarter performance, the people said, asking not to be identified discussing private information.

The crucial financial milestone would come less that 18 months after Jio, as the company is known, stormed into India's mobile-phone market with free services that triggered a tariff war and forced consolidation in the sector. Achieving profitability would be one of the parameters that will decide the company's path to an initial public offering after Ambani pumped at least $31 billion into the venture. Parent Reliance Industries has surged 77 per cent since Jio started operations and dislodged rivals to become the nation's No. 4 wireless carrier.

A Reliance Industries spokesman didn't respond to an emailed query on Jio's timeline for reporting profits.

"We are ahead of our schedule in terms of the returns that we are generating," billionaire Ambani had said at a December 1 event without giving any timelines.

Jio reported a surprise operating profit in the September quarter, the first time the unit's results were segregated. It had a net loss of Rs 271 crore ($42.5 million) on revenue of Rs 6,150 crore.

Costs have since declined substantially after a reduction in the fee an operator pays its counterparts for allowing calls to go through. The saving will flow directly into Jio's net income, the people familiar said.

jio bloomberg

The Telecom Regulatory Authority of India reduced interconnect charges by 57 per cent to 6 paise a minute starting October 1 last year. The fee is set to drop to zero from January 1, 2020.

Jio spent more than Rs 2,100 crore on access charges in the quarter ended September 30, or more than a third of its revenues, according to a company statement.

Interconnection Costs
The reduced interconnection costs will be pitted against any increase in depreciation charges and in the interest Jio pays on loans, which would erode net income. If these charges are high enough, the telecom unit may print a loss for the last quarter.

"Unfortunately a (unknown) portion of costs are still capitalized as RIL has not yet commissioned its entire telecom infrastructure," Sanjay Mookim, a Bank of America Merrill Lynch analyst in Mumbai wrote in a January 9 note, explaining why Jio's earnings numbers are hard to pin down.

Cost structures are also likely to change once Jio completes the acquisition of spectrum, tower and fiber assets from debt-laden Reliance Communications Ltd. The deal won't dent Jio's December earnings as it is expected to close between January and March.

jio bloomberg

Profits for Jio may be around the corner, boosted by a customer base that has swelled to about 160 million and  tariff hikes in October, Jefferies analysts led by Mumbai-based Somshankar Sinha wrote in a January 8 report.

Telecom could turn profitable in the three months to December 31 despite higher capital charges, Sinha wrote in the report, describing it as "a quarter of many firsts" for Reliance Industries earnings.

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