Reliance Jio Likely To Post Net Profit In December Quarter, Says Nomura

Reliance Jio's average revenue per user (ARPU) is likely to improve going ahead as the company reduces discounts on its offerings, Nomura said.

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Reliance Jio Likely To Post Net Profit In December Quarter, Says Nomura

With IUC falling by nearly 60% from October 1, Reliance Jio's margin is likely to improve further.

Reliance Jio Infocomm, the telecom subsidiary of oil-to-retail conglomerate Reliance Industries, which reported profit at operating level (EBIT) and a net loss of Rs 271 crore in September quarter , may report profit at net level in the December quarter itself, said global brokerage Nomura. Nomura expects Reliance Jio to report a net profit of Rs 3,300 crore for the current fiscal that ends on March 31, 2018. "With Jio likely in profits from 3QFY18F, we now estimate Jio to have profits of Rs 33 billion in FY18F (vs loss of Rs 77 billion earlier), plus we assume stronger profits in in FY19-20F," Nomura said in a report.

Reliance Jio, which started its operations last year, reported a profit before interest and taxes (EBIT) of Rs 260 crore on revenues of Rs 6,150 crore for the July-September quarter. However, on a net basis the company reported a loss of Rs 271 crore for the same quarter.

Despite being the new entrant in the telecom industry, Reliance Jio has acquired 13.86 crore subscribers as on September 30. As per telecom regulator Trai's data, Reliance Jio was the fourth biggest telecom operator in India with 10.83 per cent market share as of July 31, 2017.

The company reported an operating margin (EBITDA) of 23.5 per cent in the September quarter. Nomura said Jio's EBITDA margin could have been 43 per cent but for interconnect charges of 14 paise per minute till September 30. Interconnect charge or IUC is a charge that is paid by a telecom service provider, from whose network a customer originates a call. Last month TRAI slashed the IUC by more than half to 6 paise per minute, as against 14 paise per minute with effect from October 1, 2017.

IUC was a major part of Jio's operating cost (Rs 2,140 crore, 45 per cent of overall operating costs) as its subscribers mostly use their Jio numbers to do outgoing calls because it does not charge anything for voice calls. As the IUC will be reduced by nearly 60 per cent with effect from October 1, Nomura expects Jio's profitability to improve further in the coming quarters.

Meanwhile, Jio's average revenue per user (ARPU) is likely to improve going ahead as the company reduces discounts on its offerings, Nomura said. The brokerage expects Jio's ARPUs to be around Rs 159 for FY18, which it expects may improve further to Rs 195-200 by FY20-21, compared to Rs 156 in the last quarter.

"Including lower ARPU from the Jio phone segment, we assume, overall ARPUs of Rs 159 (net of taxes) for FY18F, and as discounts recede, we expect a gradual increase in ARPUs to Rs 195-200 (net of taxes) by FY20-21F," Nomura said. (With agency inputs)

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