Reliance Jio will turn Ebitdar-positive only by 2019: Moody’s

Reliance Jio’s aggressive tariff plans will have a big impact on cash reserves of Reliance Industries, says Moody’s Investors Service


Moody’s also expects RIL to incur increased capital expenditure because of Reliance Jio. Photo: Aniruddha Chowdhury/Mint
Moody’s also expects RIL to incur increased capital expenditure because of Reliance Jio. Photo: Aniruddha Chowdhury/Mint

New Delhi: Reliance Jio Infocomm Ltd will manage to generate a positive Ebitdar (earnings before interest, taxes, depreciation, amortization and restructuring) only by 2019, that too at a lower average revenue per user, Moody’s Investors Service said.

Jio’s aggressive tariff plans will have a profound impact on cash reserves of Reliance Industries Ltd (RIL), especially as the business will bring revenues only from January, the rating agency said in a report.

“We no longer expect the telecom business to generate any EBITDAR in the fiscal year ending March 2017 (fiscal 2017), and for EBITDAR in fiscal 2018 to fall below our previous estimate. By fiscal 2019, however, we expect EBITDAR to be either in line or better than our previous estimate, as we expect the company will by then have built up a substantial subscriber base, although at a lower average revenue per user,” the report said.

Moody’s also expects RIL to incur increased capital expenditure because of Reliance Jio. The biggest spectrum auction in the country is beginning on 1 October with 2,354.55 megahertz (MHz) of spectrum on the block, and includes auction of the premium 700MHz band as well.

“Nearly 80% of the spectrum (by value) being auctioned is for the 700MHz band, which is better suited for 4G data services. Although we expect Jio to bid for spectrum in the upcoming auctions, our rating only incorporates spending in line with its previous purchases as the company already has the spectrum it needs for its operations,” Moody’s report said.

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Motilal Oswal, in a report issued on 9 September, also said that the challenge faced by Reliance Jio will be to keep its subscriber base in place at an ARPU (average revenue per user) of Rs200 plus. “We have factored in about 30m subscribers by FY17E (around 4m monthly subs addition) and 60m by FY18E at ARPU of INR216. This leads us to assume EBITDA loss of INR51b and IRR of 7.5%,” said a report by Motilal Oswal.

Reliance Jio has entered with the aim to increase data consumption in the Indian market where monthly mobile data consumption per user is below 300MB. The company intends to cover 90% of the population by March 2017 and 100 million subscribers in shortest period of time.

However, as per analysts at Moody’s, “a change in consumer behavior at this scale and in such a short period will be challenging. While we expect Jio will achieve its 100 million subscriber target by March 2018, it remains uncertain to what extent data consumption will increase, especially once customers are asked to pay for it.”

Reliance Jio has built its entire network around growth in data usage, but Deutsche Bank in a report on 1 September suggested that over the past six months, data penetration has stagnated at around 23% and usage growth has declined to 73% from 55%.

Also Read: Reliance Industries to invest Rs15,000 crore more in Jio

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